3.2.1 Growth

Question 1

define business growth

Answer 1

the point at which a business needs to expand and seeks options to generate more profits

Question 2

what are the 4 objectives of growth

Answer 2

1 to achieve EOS
2 increased market power over customers and suppliers
3 increased market share and brand recognition
4 increase profitability

Question 3

what are economies of scale

Answer 3

as a firm increases its scale of output, it generates efficiencies that lower average costs per unit.

Question 3

at some point increasing output will no longer be able to reduce average costs per unit, working beyond this level of output will cause average costs per unit to ____, this is _______________ __ ______.

Answer 3

costs, diseconomies of scale

Question 4

what is the difference between internal and external economies of scale

Answer 4

internal- as a result of growth in production within the business
external- when the firm benefits from lower average unit costs for factors outside of the business

Question 5

explain 6 types of internal economies of scale

Answer 5

financial EOS - larger firms will receive lower interest rates on loans than small firms

Managerial EOS - specialist managers can be employed in large firms, this improves efficiency

marketing EOS - spreading the cost of advertising over a larger number of sales and different geographical locations

purchasing EOS - bulk purchasing discount

technical EOS - spreading the cost of machinery and tech over more units

Risk-bearing EOS - allows a business to spread the risk of failure over many different products

Question 6

explain 3 types of external economies of scale

Answer 6

geographic cluster EOS - when business that rely on each other locate close together to reduce average costs

transport links EOS - allows industry to grow as movement of people and goods is better

skilled labour EOS - if there is a large population of skilled workforce then the cost for them Is lower as they can’t demand higher pay

Question 7

what problems may arise from growth

Answer 7

• diseconomies of scale, when a company grows too large and it is difficult to manage and control the operations, creating inefficiencies and increasing the average cost per unit
• internal communication, the strain on communication challenges creates errors, missed opportunities etc.
• overtrading, when a business accepts more orders than it can cope with, may result in cashflow problems