Chapter 1 theme 2- Why Do Businesses Want To Grow

Question 1

Economies of scale

Answer 1

Includes many ways in which long run increases in capacity and output can increase average costs

Question 2

Internal economies of scale

Answer 2

Arise when a business invests in larger scale production

Question 3

External economies

Answer 3

Involves unit cost reductions that are shared by a whole industry, rather than a single firm

Question 4

Minimum efficient scale

Answer 4

Is the lowest level of output at which average unit costs are minimised because the firm can make full use of economies of scale

Question 5

Monopsony

Answer 5

Refers to a market with a single buyer. If suppliers insist on higher prices they may lose their contracts

Question 6

Brand recognition

Answer 6

Measures the percentage of consumers who recognise a specific brand and associate it with product features

Question 7

Organic growth

Answer 7

Means expansion of a single business by extending its own operations rather than by merger or take over. Organic growth is likely to be slower but more secure

Question 8

Inorganic growth

Answer 8

Refers to expansion by merger or take over, bringing sudden increases in business size.