Growth of Firms

Question 1

How can economies of scale help a business to grow?

Answer 1

Products can be made at a lower average cost, meaning that they can be sold at lower prices causing a sales increase- increasing market share and profit

Question 2

What are the three main ways a business can expand internally?

Answer 2

Produce more of its current products
Introduce current products into new markets (abroad)
Launch new products

Question 3

What’s horizontal integration?

Answer 3

When 2 competitors merge- they are both in the same sector

Creates larger economies of scale, larger market share

Question 4

What’s forward vertical integration?

Answer 4

When a firm takes over a sector after itself / a customer

Creates a greater access to customers, reduces costs

Question 5

What’s backward integration?

Answer 5

When a firm takes over a sector before itself / a supplier

Gives greater control over supplies, cheaper and better quality raw materials

Question 6

What are the problems of takeovers?

Answer 6

Staff made redundant

Bad feeling between the firms- tension among staff

Question 7

What is the difference between a takeover and a merger?

Answer 7

Takeovers are when one firm buys another, mergers are when two firms agree to come together