Growth Of The Firm Flashcards
Stakeholder
A group or individual who is interested or influenced by a business
Business objectives (8)
Corporate social responsibility
Revenue maximisation
Increases market share
Sales maximisation
Profit maximisation
Profit satisfying
Survival
Social welfare
Motivations to grow (4)
Profit
EOS
Market power
Risk reducing
Organic growth (4)
• Product development
• Market penetration
• Diversification
• Market development
External growth
Usually involves a merger or takeover
Horizontal growth
Firms that merge in the same industry and stage of production
Vertical growth
Firms in the same industry but at different stages of production merging
Forwards vertical
Buying firms closer to the customer
Backwards vertical
Buying firms further away from the customer
Conglomerate growth
2 firms merging with no common interest (done to diversify and reduce risk)
MR=0
Revenue maximisation
AC=AR
S-Max
MR=MC
P Max
Why P-Max (4)
• Invest in R+D
• Pay shareholders
• Finance expansion
• Classical assumption: firms are profit maximisers (entrepreneurial reward)
William Baumol
In manager controlled business he researched found that annual salaries and perks where more closely linked to sales revenue rather than profit
