Growth & Efficiency

Question 1

Define Internal Growth

Answer 1

also known as organic growth, refers to the expansion of a business’s operations and activities through its own resources and efforts, rather than relying on external factors

Question 2

Define External Growth

Answer 2

also known as inorganic growth, refers to the expansion of a business’s operations and activities through means other than the company’s internal resources and efforts

Question 3

Define Franchising

Answer 3

This involves granting the right to use the company’s brand, products, and processes to other businesses in exchange for a fee.

Question 4

Define Diversification

Answer 4

This involves expanding the business into new product lines and new industries that are unrelated to the company’s existing operations.

Question 5

Define Merging

Answer 5

This involves combining two or more businesses, either by merging them together or by one company acquiring another.

Question 6

Define Horizontal integration

Answer 6

is when a business takes over another business in the same or similar market.

Question 7

Define Backward Vertical integration

Answer 7

is when a business takes over the firm either manufacturing or supplying the raw materials for them.

Question 8

Define forward vertical integration

Answer 8

is when a business takes over either of the firms in the secondary or tertiary sector of the market.

Question 9

Positives of Internal growth

Answer 9

Less risky, allows for more control over operations and cost effective

Question 10

Costs of internal growth

Answer 10

Can be slow growth, limited resources, limited market reach

Question 11

Positives of External growth

Answer 11

Rapid Expansion, Increase In market Share, Spreads Risk

Question 12

Costs of External growth

Answer 12

High Costs, Resistance to change, Brand and Reputation risks.

Question 13

Positives of Franchising

Answer 13

Brand recognition, sharing of risk

Question 14

Costs of Franchising

Answer 14

Loss of control, Franchisee upfront costs

Question 15

Positives of Diversification

Answer 15

Spreads risk, creates opportunities

Question 16

Costs of Diversification

Answer 16

Initially risky, high resource allocation, ruin brand reputation

Question 17

Positives of merging

Answer 17

Economies of scale, market share expansion

Question 18

Costs of merging

Answer 18

High financial risk, clashes throughout the business

Question 19

Positives of Horizontal integration

Answer 19

Removes some of the competition – possibly for defensive reasons.

May benefit from increased economies of scale.

Increases market power to compete with market leaders by spreading the brand.

Question 20

Costs of Horizontal integration

Answer 20

Negative synergy, risky, reduced flexibility.

Question 21

Positives of vertical integration

Answer 21

Security of supplies and control of suppliers’ prices.

Improves supply chain co-ordination.

Can guarantee the quality of its raw materials.

Security of distribution outlet for products.

Use of outlets to determine brand image.

Question 22

Costs of vertical integration

Answer 22

Your firm is not an expert in that part of the market, can create communication problems, Vertical mergers will have fewer economies of scale because production is at different stages of supply.

Question 23

Define Productive efficiency

Answer 23

Productive efficiency is the ability of a firm to produce goods or services at the lowest possible cost.

Question 24

Where is the point of productive efficiency on a diagram

Answer 24

On a competitive diagram this point is where marginal cost meets average cost and if they meet at the bottom of AC it is productively efficient.

Question 25

How productively efficient are all the types of markets?

Answer 25

In perfect competition in the long run it is productively efficient

In Monopoly competition it is productively inefficient as it doesn’t need to be.

In Monopolistic competition is not productively efficient in the long run or short run

Oligopoly - productive efficiency is achieved depends on the specific industry.

Monopoly not productively efficient

Question 26

Define Allocatively efficiency

Answer 26

Achieved when the value consumers place on a good or service = the cost of the resources used in production

Question 27

How allocatively efficient are all the types of markets?

Answer 27

Perfect competition is efficient in both

Monopoly inefficient

Monopolistic competition not allocatively efficient

Oligopoly firms can engage in price competition, leading to allocative inefficiency

Question 28

When is allocatively efficiency achieved on a competitive diagram

Answer 28

When MC and AR meet and are in line with the Profit max point (MR = MC)