Horizontal Boundaries

Question 1

Definition of horizontal boundaries

Answer 1

identifies quantities and vareities of product/services that a firm produces.

Question 2

factors increasing icnentive to increase horizontal boundary

Answer 2

eonomies of scale
learning economies
economies of scope

Question 3

reasons for scale and scope economies

Answer 3

-spreading fixed cost over alrge no of output reduces avergae cost
-experience of producing certain product help reduce average cost
-bulk purchasing of input can reduce average cost of final goods
spreading fixed costs over diff activities by using same input/facility for diff products
-undertaking complimentary practices is more profitable

Question 4

factors reducing incentive to increase horizontal boundary

Answer 4

• difficult to manage large firm due to agency and influence cost
• spreading specialised resources to thinly over diff activities
• large firms may need to uncur high labour costs due to strong labour unions or attacting workers from different regions.

Question 5

Unrelated Diversification

Answer 5

when a company is diversifying to unrelated business

Question 6

reasons for unrelated diversifciation

Answer 6

• scope economies
• internal capital amrket
• internal labour market
• managerial interest

Question 7

reasons for unrelated diversifciation

Answer 7

• scope economies
• internal capital amrket
• internal labour market
• managerial interest

Question 8

reasons to avoid unrelated diversification

Answer 8

• don’t want to spread specialised resource too thinly as it can create diesconomies of scale
• agency porblem
• influence costs
• makret for corporate control can reduce a manager’s incentive for diversification.