GROWTH

Question 1

What are the benefits of Growth?

Answer 1

1. Higher revenues
2. E.O.S (Lower costs)
3. Higher profile
4. Larger market share

Question 2

What are the methods of increasing growth?

Answer 2

1. Launch new products
2. Launch into new markets
3. Increase advertising

Question 3

What is the Law Of Diminishing Returns?

Answer 3

This explains that when more and more units of a variable input are employed on a given quantity of fixed inputs, the total output may initially increase at an increasing rate and then at a constant rate, but it will eventually increase at diminishing rates.

Question 4

What is Internal E.O.S?

Answer 4

These are the benefits derived from growth that arise within the firm.

Question 5

State all the Internal E.O.S that can be achieved

Answer 5

1. Purchasing E.O.S
2. Marketing E.O.S
3. Technical E.O.S
4. Specialisation and Managerial E.O.S
5. Financial E.O.S
6. Risk Bearing E.O.S

Question 6

What is the Principle Of Increased Dimensions?

Answer 6

This is linked to the cubic law where doubling the height and width of a tanker or building leads to a more than proportionate increase in the cubic capacity – the application of this law opens up the possibility of scale economies in distribution and freight industries and also in travel and leisure sectors with the emergence of super-cruisers such as P&O’s Ventura. Consider the new generation of super-tankers and the development of enormous passenger aircraft capable of carrying well over 500 passengers on long haul flights. The law of increased dimensions is also important in the energy sectors and in industries such as office rental and warehousing.

Question 7

What is the Law Of Multiples?

Answer 7

This is when many lower capable resources such as labour or machinery should be employed at a lower cost to achieve the same productivity of a higher cost and more capable resource.

Question 8

What is External E.O.S?

Answer 8

These are the reduction in costs experienced by any business within an industry due to the benefits received from the industry’s growth.

Question 9

State all the External E.O.S that can be achieved

Answer 9

1. Labour
2. Ancillary and commercial services
3. Co-operation
4. Disintegration

Question 10

What does Disintegration mean?

Answer 10

This is when production is broken up so that more specialisation can take place. This occurs when an industry is concentrated in one location so firms will focus on specializing in one component instead of the whole process.

Question 11

How are Stakeholders affected negatively by businesses with large Market Power?

Answer 11

1. Customers would be charged higher prices as there is lower substitutes or rivals available in the market and would have access to a smaller choice of products.
2. Suppliers would be forced to lower prices in order to sell off their inventory.

Question 12

State the benefits for businesses of having access to a larger Market Share and Brand Recognition

Answer 12

1. Raise prices
2. Lower marketing costs
3. Achieve customer loyalty
4. Greater product recognition
5. Competitive advantage as profitability would be higher which could be used for investment and invention to stay ahead of rivals.

Question 13

What is External Growth/Inorganic Growth?

Answer 13

This is the growth of businesses through Mergers or Takeovers.

Question 14

What is Internal Growth/Organic Growth?

Answer 14

This is when a business grows naturally by using its own resources and selling its output to expand operations.