unit 9

Question 1

advantages of having a large business

Answer 1

increased profits for business
profits can be reinvested back to stimulate growth
larger market share - can be used to control prices
economies of scales
economies of scope
can adapt easily if market changes (if large range of prod or serv)

Question 2

what are economies of scale

Answer 2

economies of scale means that as scale of production increases, the cost of producing each item (unit cost) decreases

Question 3

different economies of scale

Answer 3

technical
purchasing
managerial

Question 4

technical economies of scale

Answer 4

related to production
production methods for large volumes are more efficient
larger businesses can afford to buy better more advanced machinery
might need fewer staff, wage costs will fall

Question 5

managerial economies of scale

Answer 5

larger businesses can employ managers with specialist skills to manage specific departments
oversee plans and strategies which can result in work being done more quickly and efficiently

Question 6

purchaing economies of scale

Answer 6

are to do with discounts
businesses can negotiate discounts when buying supplies in large quantities
bigger discounts and longer credit periods
borrow money at lower rates of interst than small bs

Question 7

experience curve

Answer 7

when a business grows and increases its sales volme, will lead to workers getting more experienced and more efficient at making products which will cause cost per unit to decrease

Question 8

reason for experience curve

Answer 8

workers get more practice and experience at making products they become more productive
workers develop better ways to make the product, including wasting fewer materials, taking less time

Question 9

economies of scope

Answer 9

when a business produces multiple products instead of specialising in one
cheaper for one bs to produce many procducts

Question 10

why does economies of scope occur

Answer 10

business that already has people and an infrastructure in place will be more efficient at producing an additional product
- existing business able to benefit from brand loyalty

Question 11

advantage of economies of scope

Answer 11

allows business to charge lower prices due to lower unit costs
this gives them a competitive advantage over other businesses

Question 12

diseconomies of scale

Answer 12

make unit costs increase as the scale of production increases , this happens because large firms are harder to manage than small ones

Question 13

disadvantages of diseconomies of scale

Answer 13

poor coordination makes a business less efficient
harder to coordinate activities
communication harder esp when there are long chains of command
harder to motivate people

Question 14

retrenchment

Answer 14

business has to downsize in some areas
may be necessary in order for a business to remain profitable

Question 15

why is retrenchment sometimes needed

Answer 15

diseconomies of scale
declining markets
economic recession
improved competitor performance

Question 16

how can retrenchment affect workers

Answer 16

can lead to decreased productivity

Question 17

reasons for producing more and sourcing more
resources abroad

Answer 17

• can reduce costs
• is a way of targeting new international markets
• helps companies avoid trade barriers
• has been made easier by improved transport and communication links

Question 18

why can locating abroad reduce costs

Answer 18

• they can pay foreign workers much lower wages than they would UK employees
• cost of land and office space also tends to be cheaper overseas

Question 19

why is locating abroad a way of targeting new international markets

Answer 19

• it makes it easier to spot local market trends
• company is able to absorb more local knowledge, means it is less likely to make expensive marketing errors and might even spot new market niches
• will make distribution of products to market easier and decrease distribution costs to that market

Question 20

why might locating abroad help companies avoid trade barriers

Answer 20

locating part of a business within a country with trade barriers helps companies get round taxes or restrictions
a foreign company that locates in a country with trade barriers will have a competitive advantage because its more likely to be efficient

Question 21

why has locating abroad made easier by improved transport and communication links

Answer 21

trading overseases easier because countries with emerging markets are investing heavily in infrastructure
means they have better road and rail networks

Question 22

offshoring

Answer 22

when businesses locate some of their departments overseas

Question 23

dis / adv of offshoring

Answer 23

is a good way to cut costs, however not always good for company’s image. media and trade unions criticise companies for UK job losses caused by offshoring

Question 24

reshoring

Answer 24

when a business moves departments back to its country of origin

Question 25

what does reshoring allow

Answer 25

a business to improve the quality of its products and processes as manafacturing is easier to monitor and control if everything is made in the same country
distribution to home market is cheaper and more efficient