T3 BUSINESS OBJECTIVES AND GROWTH

Question 1

what is Profit satisfice

Answer 1

where a firm or individual seeks to achieve an acceptable or satisfactory level of profit rather than maximizing profits.

Question 2

Reasons why some firms grow while others stay small (4)

Answer 2

However, firms might lack the finance to expand

However, regulations might prevent firms from growing

However, firm might be in a niche market or selling personalised goods

diseconomies of scale

Question 3

Write the definition of: The divorce of ownership and control

Answer 3

When the managers/directors of a firm are different from the owners of the firm.

Question 4

Write the definition of: The principal-agent problem

Answer 4

The principal-agent problem is when the agent pursues different objectives to the principal

Question 5

What is an example of the principal-agent problem

Answer 5

Workers pursuing different goals than what the ceo wants.

Question 6

Write the definition of: Private sector firms

Answer 6

firms owned by private individuals.

Question 7

Not-for-profit firms

Answer 7

Not-for-profit firms are not looking to just make a profit, they also pursue other social and environmental objectives.

Question 8

what is organic growth

Answer 8

Organic growth is when a firm grows by investing in itself to increase output.

Question 9

Inorganic growth

Answer 9

is when a firm grows by acquiring, or merging with, another firm.

Question 10

backwards vertical integration is when:

Answer 10

A firm integrates with another firm who is further away from the consumer in the same production process

Question 11

What are the 4 types of inorganic growth

Answer 11

Backward vertical integration

Forward vertical integration

Horizontal integration

Conglomerate integration

Question 12

What is forward vertical integration

Answer 12

A firm integrates with another firm who is closer to the consumer in the same production process

Question 13

What is horizontal integration

Answer 13

A firm integrates with another firm at the same stage of the production process

Question 14

What is conglomerate integration

Answer 14

is when two firms in unrelated industries join together

Question 15

What is vertical integration

Answer 15

Vertical integration is when firms at different stages of the same production process join together.

Question 16

what are the pros of organic growth? (2)

Answer 16

using a bank loan or reinvesting profit to grow organically, a firm’s owner will keep control over the company. So the owner will take most of the firm’s profit.

organic growth is low risk because the firm expands by increasing its own output in a market it is already familiar with and selling a good/service it is already good at producing

Question 17

What are the cons of organic growth

Answer 17

organic growth can mean slower growth. Whereas a firm can grow very quickly inorganically by merging/acquiring

Question 18

What are the pros of vertical integration

Answer 18

Better access
Control of supply chain
reduce intermediary costs

Question 19

What are the cons of vertical integration

Answer 19

Regulation
costs from diseconomies of scales
costs from acquisitions
lack of expertise

Question 20

Internal economies of scale are when

Answer 20

A firm experiences reductions in long run average cost, as a firm’s size increases

Question 21

What are the different types of internal economies of scale

Answer 21

RMFPTM. Risk-bearing, Managerial, Financial, Purchasing, Technical, Marketing.

Question 22

what are the pros of horizontal mergers? (3)

Answer 22

economies of scale which reduce a firm’s LRAC

reduces competition

rationalisation

Question 23

What are the cons of horizontal integration (3)

Answer 23

diseconomies of scale
job losses
brand dilution

Question 24

What is rationalism in the context of horizontal mergers

Answer 24

when firms reorganise to avoid duplicated costs

Question 25

What are the pros of conglomerate integration

Answer 25

increase awareness risk bearing economies knowledge transfers

Question 26

What are the cons of conglomerate integration

Answer 26

diseconomies of scale lack expertise brand dilution

Question 27

What are the three types of diseconomies of scale

Answer 27

Alienation Bureaucracy Communication

Question 28

What does successful knowledge transfers through conglomerate integration lead to

Answer 28

increased dynamic efficiency

Question 29

What is demerging

Answer 29

Demerger refers to the process of a company separating one or more of its business units or divisions into independent entities

Question 30

What are the benefits of demergers

Answer 30

reduce the size of the firm. This reduces diseconomies of scale firms can separate and specialise in their own goods/services firm can sell of one of its divisions and its assets, to raise money avoid conflicts between different departments because of culture differences

Question 31

What are the cons of demergers

Answer 31

job loss or decrease in job security reduces in economies of scale may lead to higher prices

Question 32

Pros and cons of demergers to workers

Answer 32

P: reduced cultural conflicts C: Decreased job security

Question 33

Why do demergers decrease job security

Answer 33

Workers won’t know which new division they’ll join after the demerger if one of the division is sold to raise funds, workers may lose their jobs

Question 34

what is meant by influencers of the firm

Answer 34

owners, shareholders, directors/managers, workers and consumers.

Question 35

What are Shareholders objectives

Answer 35

Shareholders usually look to maximise profit. This is done by an increase in the stock price

Question 36

Directors/managers objectives (2)

Answer 36

Maximising sales increases their sales bonus maximising revenue increases company size, boosting their prestige.

Question 37

Workers objectives (3)

Answer 37

higher wages, job security and improved working conditions.

Question 38

Consumers objectives

Answer 38

lower prices, better customer service and quality, they also care about social and environmental causes

Question 39

Where will a revenue-maximising firm produce:

Answer 39

MR = 0

Question 40

Where does a sale maximising firm produce

Answer 40

AR = ATC / AC

Question 41

What is meant by sales maximisation

Answer 41

Sales maximisation is when a firm maximises its sales without making a loss This is achieved where AR = AC

Question 42

What is meant by revenue maximisation

Answer 42

Trying to maximise revenue, producing at point mr=0

Question 43

divorce of ownership and control can lead to:

Answer 43

principal agent problem

Question 44

Explain how vertical integration can be an anti-competitive practice:

Answer 44

Firms can vertically integrate to take control of scarce resources and then refuse to let new firms use these scarce resources, stopping them from entering the market.