P2- Growth

Question 1

Benefits of growth

Answer 1

• increase market share
• increase profit
• increase brand awareness

Question 2

Sources of economies of scale

Answer 2

Purchasing economies- when a business buys raw materials in bulk to get discounts from suppliers

Technical- involving new and better technology/ specialist equipment allowing the business to cut manufacturing costs or become more efficient

Financial- large firms benefit from access to more and cheaper finance

Managerial- when a business employee specialists in different areas and invests expertise

Marketing- business lowering the cost of advertising due to growth

Network- when the value of a product increases as a number of consumers/users increase

Question 3

Diseconomies of scale

Answer 3

As output increases, average cost per unit increases.
This happens when a business expands beyond an optimum size and becomes less efficient

Question 4

Diseconomies of scale factors

Answer 4

Coordination/control- problems in monitoring productivity and work quality, increasing wastage of resources

Motivation- workers in large firms may develop a sense of alienation and loss of morale

Communication- workers in large businesses may have less opportunity to communicate

Negative effects of internal politics- information overload, unrealistic expectations among managers and cultural clashes between senior people with inflated egos

Question 5

Overtrading

Answer 5

When a business expands too quickly without having the financial resources to support such a quick expansion