Module 4

Question 0

How can firms grow?

Answer 0

Intentionally or naturally

Question 1

How can the size of a firm be measured?

Answer 1

Sales turnover
Number of people employed 
Total share capital
Market shares
Number of outlets

Question 2

How cam business’s grow?

Answer 2

Internally or externally

Question 3

How do firms grow ( internally ) ?

Answer 3

Expanding size of building
Employing more workers
Adding more machinery

Question 4

How can firms grow (externally)?

Answer 4

Integrating it with another business

Merging it

Question 5

What is a merge/r?

Answer 5

When two or more firms join together and have equal ownership

Question 6

What is a takeover?

Answer 6

When one firm buys out another and has ownership of that business

Question 7

What is a backward vertical merger?

Answer 7

When a firm takes over or merges with its supplier

Question 8

What is a forward vertical merger?

Answer 8

When a firm takes over or merges with its client

Question 9

What is a diversifying/conglomerate merger?

Answer 9

When a firm buys out or takes over another firm which produces something totally unrelated to its own product

Question 10

What is a horizontal merger?

Answer 10

When a firm takes over/merges with its competitor

Question 11

What is a lateral merger?

Answer 11

When a firm buys out or takes over another firm which produces a good/service related to its own product

Question 12

What is a vertical merger?

Answer 12

In the same business but at different stages of production

Question 13

What are advantages of growth?

Answer 13

More profits
Become more well known
Greater market share
More economies of scale

Question 14

What are disadvantages of growth? (For the business)

Answer 14

Less competition
Disagreement
Different objectives
Lots of money required to take over or merge with other firms

Question 15

What are disadvantages of growth (for consumer) ?

Answer 15

Prices may increase
Loss in quantity
Job losses

Question 16

Why stay small?

Answer 16

More control
Cannot be exploited 
Makes product more valuable/ unique 
Personal service
Barriers to entry 
Can't take advantage of economics of scale

Question 17

What are economies of scale?

Answer 17

The benefits gained from producing on a large scale

Question 18

What are internal factors of economies of scale?

Answer 18

Production 
Managerial 
Financial 
Marketing 
Purchasing 
Mass production

Question 19

What are internal factors that CREATE economies of scale?

Answer 19

Improved infrastructure
Agglomeration
Use of waste products
Pool of labour

Question 20

What are diseconomies of scale ?

Answer 20

A result of a firm growing too large to be handled efficiently

Question 21

What are internal factors that create diseconomies of scale?

Answer 21

Loss of managerial control
Over specialization
Use of machinery

Question 22

What are external factors of diseconomies of scale

Answer 22

Congestion
Higher price of land
Shortage of skilled workers

Question 23

What is productive efficiency ?

Answer 23

Where full economies of scale take place (achieved at point x)

Question 24

Importance of small firms to an economy

Answer 24

1. Help stimulate economic growth by providing employment opportunities to people who may not be employable by larger corporations 2. Tends to attract talent who invent new products or implement new solutions for existing ideas 3. Many large corportations depends on small firms for the completion of various business functions through outsourcing. 4. Due to being customer orientated many businesses possess ability to respond and adapt quickly to changing economic climates 5. Being customer orientaded, customers will stay loyal to their favourite small business, keeping the firm afloat through times. 6. They accumulate less revenue than larger corporations, meaning they have less to lose in times of economic crisis. 7. Thriving small local businesses generate high levels of revenue, business pays higher taxes.