chapter 1 - growth

Question 1

economies of scale

Answer 1

the cost advantages companies gain from increasing their output

Question 2

diseconomies of scale

Answer 2

growth in output results in an increase in average cost per unit

Question 3

market power

Answer 3

the ability of a business to set their prices above a level that would exist in a highly competitive market

Question 4

7 types of internal economies of scale
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Answer 4

1. risk bearing
2. financial economies
3. managerial economies
4. technical economies
5. marketing economies
6. research and development economies
7. purchasing economies

Question 5

risk bearing

Answer 5

diversification being able to spread business risks across a number of markets locations and products

Question 6

financial economies

Answer 6

being able to access a range of finances, often at a lower cost or rates of interest than smaller firms

Question 7

marketing economies

Answer 7

spreading the high cost of advertising across a large level of output

Question 8

managerial economies

Answer 8

made by employing specialist functions in a firm such as accountants, sales, production

Question 9

technical economies

Answer 9

firms can spread the cost and use expensive capital goods, machinery, production lines and logistics

Question 10

R and D economies

Answer 10

research and development- investing to develop new and better products. Also logistics

Question 11

purchasing economies

Answer 11

buying supplies in bulk and therefore gaining a larger discount from suppliers

Question 12

advantages of external economies of scale - CONCENTRATION

Answer 12

1. a local skilled labour force is available
2. specialist local back up firms can supply parts or services
3. an area has a good transport network
4. an area has an excellent reputation for producing a particular good

Question 13

types of internal diseconomies of scale

Answer 13

1. disadvantages of division of labour
2. quality control becomes a problem
3. firms become inflexible

Question 14

disadvantages of division of labour

Answer 14

1. skill shortages
2. slow decision times and poor communication skills
3. motivational problems
4. poor labour relations

Question 15

types of external diseconomies of scale

Answer 15

1. Higher wages- attract new and skilled workers
2. Higher rent - land and factories become scarce
3. transport costs rise - locally roads become congested

Question 16

how can firms increase market power over
1. consumers
2. suppliers
3. stakeholders

Answer 16

1. can charge higher prices
2. negotiate lower costs
3. can get away with unethical objectives. also get grants and subsidies

Question 17

how can firms increase profitability

Answer 17

1. use retained profit as a cheap source of finance
2. use to fund internal economies of scale

Question 18

4 objectives a business has to grow

Answer 18

1. economies of scale
2. increase market power
3. increase market share/ brand recognition
4. increase profitability