3.2

Question 1

what are 4 objectives of growth + definitions

Answer 1

• economies of scale = costs decrease as output increases
• market power = gaining more influence in the market
• market share = gaining more share in the market
• profitability = higher profit margins

Question 2

what are 3 problems with growth + definitions

Answer 2

diseconomies of scale = unit costs increase due to vast expansion

internal communication = will become difficult with more staff

overtrading = overspending in search of growth

Question 3

What are the 2 methods of inorganic growth

Answer 3

mergers - 2 businesses joining into one to form a new company

takeovers - one business purchasing another

Question 4

Whats the difference between vertical and horizontal integration

Answer 4

vertical = merger or takeover from businesses at different stages of the supply chain

horizontal = merger or takeover from businesses at the same stage of the supply chain

Question 5

What is organic growth and how can it be achieved

Answer 5

organic growth = growth done through the businesses own expansion

• launch new product
• launch new market

Question 6

What are the benefits of a business staying small

Answer 6

• reduced risk of overheads
• product differentiation/USP
• flexibility in responding to customer needs
• customer service

Question 7

average cost per unit formula

Answer 7

total costs of production in period/ total output in period

Question 8

purchasing economies of scale

Answer 8

Buying in greater
quantities usually
results in a lower price
(bulk-buying).

Question 9

technical economies of scale

Answer 9

Use of specialist
equipment or processes
to boost productivity.

Question 10

manegerial economies of scale

Answer 10

Specialist managers can
be employed to help
reduce unit costs and
boost efficiency

Question 11

signs that a business may be overtrading

Answer 11

• High revenue growth but very low gross and operating profit margins (compared with key
  competitors )
• Persistent use of a bank overdraft facility
• Significant increases in the payables days and receivables days ratios
• Significant increase in the current ratio
• Very low inventory turnover ratio
• Low levels of capacity utilisation (alongside high levels of investment in capacity)

Question 12

economies of scale

Answer 12

arise when unit costs fall as output increases

Question 13

unit costs formula

Answer 13

total production costs/total output

Question 14

marketing economies of scale

Answer 14

spreading a fixed marketing spend over a larger range of products markets and customers

Question 15

financal economies of scale

Answer 15

larger firms benefit from having access to more and cheaper finance

Question 16

risk bearing economies of scale

Answer 16

larger firms benefit from having a wider, more diverse product range

Question 17

external economies of scale

Answer 17

arise from the indutry as a whole which happens when a number of large firms locate near each other

Question 18

benefits from external economies of scale

Answer 18

• labour due to the exisiting local workforce.
• area will build up a good rep
• firms will recieve support from the local council and national goverment e.g motorways will be built

Question 19

external economies of scale can lead to

Answer 19

• higher profit margins a unit costs are cheaper
• more funds for investment or giving shareholders larger dividents

Question 20

diseconomies of scale

Answer 20

as the business grows they may exand the scale of production beyond the minium efficient scale. average costs per unit start to rise as production rises

Question 21

why could costs rise

Answer 21

• miscommunication
• increased layers of hierarchy
• poor co ordination
• lack of control
• poor employee motivation

Question 22

reasons for inorganic growth

Answer 22

• increase market share
• acquire new skills
• access economies of scale
• secure better distribution
• aquire intangable assets
• spread risk by diversifying
• overcome barriers to entry to target markets