Theme 3.1 Business Growth

Question 1

Explain how profit causes a business to seek growth?

Answer 1

To generate more profits to give shareholders a better return.

Question 2

Explain how costs might make a business seek growth?

Answer 2

So that they benefit from economies of scale, which results in lower unit costs of production.

Question 3

Explain how market power can cause a business to seek growth?

Answer 3

So that they become a more dominant force in their markets and become the price makers.

Question 4

Explain how reducing risk can cause a firm to seek growth?

Answer 4

Firms might want to diversify so that if sales drop in one market they have another market to generate sales.

Question 5

Explain how managerial motives can cause a business to seek growth?

Answer 5

Senior managers may wish to grow in order to control a larger business.

Question 6

What is a public sector organisation?

Answer 6

Public sector organisations are government funded and usually look to provide services for citizens.

Question 7

What is a private sector organisation?

Answer 7

The part of the country’s economic system that is ran by individuals and companies. Most are run with the intention of making profit

Question 8

What is a ‘not-for-profit’ organisation?

Answer 8

A type of organisation that doesn’t earn profit for its owners. All of the money earned is either donated or put back into the running of the business. These are usually charities.

Question 9

What is organic growth?

Answer 9

Where a business grows internally by investing profits or borrowing from banks.

Question 10

Name 3 reasons for organic growth?

Answer 10

To increase market share, Finding new markets to sell its existing products and the development of new innovative products.

Question 11

What is vertical integration?

Answer 11

Where 2 businesses at different stages of production, but in the same industry join together.

Question 12

What is forward vertical integration?

Answer 12

Where one firm integrates with a firm in a stage of production closer to the consumer.

Question 13

What is backwards vertical integration?

Answer 13

Where a firm integrates with another in the stage of production further away from the customer.

Question 14

What is horizontal integration?

Answer 14

Where two businesses at the same stage of the production in the same industry join together.

Question 15

What is conglomerate integration?

Answer 15

Where two businesses in different industries merge.

Question 16

Name one advantage and one disadvantage of vertical integration?

Answer 16

Greater control over the supply chain resulting in reduction of costs and greater quality. However, can also cause diseconomies of scale

Question 17

Name two advantages and disadvantages of horizontal integration?

Answer 17

Allows rationalisation and reduces competition. However, include different cultures in businesses and can see diseconomies of scale

Question 18

What is a demerger?

Answer 18

When a business sells off one or more of the business that it owns into a separate company.

Question 19

Name 3 reasons for demergers.

Answer 19

Can create more focused firms, protecting the value of the firms and reduce the risk of diseconomies of scale.

Question 20

2 impacts demergers have on businesses?

Answer 20

Allowing focus on the core business and raising funds from selling parts of the business.

Question 21

2 impacts demergers have on workers?

Answer 21

Increased job security if loss-making parts of business are demerged and reduced conflict between cultures.

Question 22

2 impacts of demergers on consumers?

Answer 22

Greater consumption leads to lower prices and more focused businesses are able to better meet customer needs.