Growth 3.2.1

Question 1

Reasons why businesses grow

Answer 1

-Desire to reduce costs by benefitting from economies of scale (internal and external)
-The desire for stronger market power (monopoly) over its customers and suppliers
-Desire for higher levels of market share and profitability
-Greater brand recognition

Question 2

What is economies of scale?

Answer 2

As a business grows, it can increase its scale of output generating efficiencies that lower its average costs (cost per unit) of production. Internal EoC occurs as a result of the growth within a business and external EoC occur when there is an increase in the size of the industry.

Question 3

Diseconomies of scale

Answer 3

When a company grows too large making it difficult to manage and control operations resulting in cost per unit increasing.

Question 4

Internal communication

Answer 4

Rapid growth may strain communication channels or result in miscommunication, conflicting priorities and lack of coordination

Question 5

Overtrading

Answer 5

When a business takes on more than it can handle, leading to a strain on its resources or an inability to meet financial obligations. This may cause cash flow problems or decreased customer satisfaction.