True or False?
A key reason for business growth is a desire to achieve stronger market power.
Enjoying Flashcards?
Tell us what you think
True or False?
A key reason for business growth is a desire to achieve stronger market power.
True.
A key reason for business growth is a firm's desire for stronger market power, which may involve it seeking to have a monopoly over its customers and suppliers.
Define economies of scale.
Economies of scale are efficiencies that lower a firm's average costs (cost per unit) of production as it increases its scale of output.
True or False?
Profit and profitability are the same.
False.
Profit is the absolute amount of money a company makes, while profitability is a measure of how efficiently a company generates profit relative to its revenue or investment.
What is meant by the term productive efficiency?
Productive efficiency is the point at which maximum output is produced from the available factors of production, and a business will be unable to reduce costs further.
Define diseconomies of scale.
Diseconomies of scale occur when a firm's average costs start to increase with increasing output.
What are internal economies of scale?
Internal economies of scale occur as a result of the growth in the scale of production within the firm.
Define external economies of scale.
External economies of scale occur when there is an increase in the size of the industry in which the firm operates. This allows the firm to benefit from lower average costs generated by factors outside of the business.
State the meaning of risk-bearing economies.
Risk-bearing economies occur when a firm can spread the risk of failure by increasing its number of products, which lowers the average cost.
True or False?
Rapid business growth may create challenges like diseconomies of scale, internal communication issues, and overtrading.
True.
Rapid business growth may create challenges like diseconomies of scale, internal communication issues, and overtrading.
What is overtrading?
Overtrading occurs when a company takes on more business than it can handle, leading to a strain on its resources or an inability to meet its financial obligations (lack of liquidity).
Define the term merger.
A merger occurs when two or more companies combine to form a new company.
Define the term takeover.
A takeover occurs when one company purchases another company, often against its will. It buys a controlling stake in the target company's shares, gaining control of its operations.
What is a synergy in the context of mergers and takeovers?
A synergy is a benefit resulting from the combination of two or more companies, such as increased revenue, cost savings, or improved product offerings.
True or False?
Mergers and takeovers can be used to reduce competition.
True.
Mergers and takeovers can be used to reduce competition as a competitor is removed from the market.
What does forward vertical integration involve?
Forward vertical integration involves a merger or takeover with a firm further forward in the supply chain e.g. a dairy farmer purchases an ice cream manufacturer.
What does backward vertical integration involve?
Backward vertical integration involves a merger or takeover with a firm further backward in the supply chain e.g. an ice cream manufacturer purchases a dairy farm.
State the meaning of horizontal integration.
Horizontal integration is when a firm merges with or acquires another firm in the same industry or market, and at the same stage of the production process e.g. an ice cream retailer purchases another ice cream retailer.
State two financial rewards of mergers and takeovers?
The financial rewards of mergers and takeovers include:
Increased market share
Cost savings as a result of synergies
Increased company value
Higher sales revenue as a result of entering new markets
Define overpayment in the context of mergers and takeovers.
Overpayment occurs when the acquiring company pays too much for the shares in the target company, and is unable to recoup the investment through increased revenue or cost savings.
True or False?
Rapid inorganic growth may cause diseconomies of scale and cultural/communication issues.
True.
Rapid inorganic growth may cause diseconomies of scale and cultural/communication issues when two firms merge.
Define the term organic growth.
Organic growth (internal) is achieved using reinvested profits or loans. It may include expanding the product range, or increasing the number of locations.
True or False?
Product diversification is a way to achieve organic growth.
True.
Product diversification is a way to achieve organic growth.
What is the Ansoff Matrix?
The Ansoff Matrix is a strategic planning tool that helps businesses identify potential organic growth opportunities by analysing their product and market strategies.
True or False?
Firms often grow organically to the point where they are in a financial position to integrate with others
True.
Firms will often grow organically to the point where they are in a financial position to integrate with others
State the four growth strategies in the Ansoff Matrix.
The four growth strategies in the Ansoff Matrix are:
Market penetration
Market development
Product development
Diversification
According to the Ansoff Matrix, which strategy involves targeting new markets with existing products?
According to the Ansoff Matrix, a market development strategy involves targeting new markets with existing products?
True or False?
Organic growth always leads to economies of scale.
False.
Organic growth does not necessarily lead to economies of scale, as access to finance may be limited, and the firm may not be able to grow to a scale large enough to benefit from economies of scale.
According to the Ansoff Matrix, which strategy involves targeting existing markets with existing products?
According to the Ansoff Matrix, a market penetration strategy involves targeting existing markets with existing products?
What is diversification in the Ansoff Matrix?
Diversification is a growth strategy in the Ansoff Matrix where a firm develops new products to target new markets.
True or False?
Apple's decision to develop services such as Apple TV is an example of market penetration.
True.
Apple's decision to develop services such as Apple TV is an example of diversification.
True or False?
Small firms often have the ability to respond quickly to changing customer needs and preferences.
True.
Small firms often have the ability to respond quickly to changing customer needs and preferences.
Define the term niche market.
A niche market is a small market segment with specific needs or preferences that are not being met by mainstream products or services.
State the meaning of the term satisficing.
Satisficing is when the owner's goal is not profit maximisation but rather an acceptable quality of life.
True or False?
Small firms offer a more personalised service.
True.
Small firms often offer a more personalised service and focus on building strong relationships with their customers.
What is the advantage of small firms targeting niche markets?
An advantage of small firms targeting niche markets is that they can target these markets profitably. They have relatively low overheads and do not need to achieve the volume of sales required by larger competitors.
Define the term diseconomies of scale.
Diseconomies of scale occur when a firm's average costs start to increase with increasing output.
True or False?
Developments in technology rarely benefit small firms.
False.
Developments in technology can work to the advantage of small firms . For example, the internet offers low cost access to global markets.
State the meaning of personalised service.
Personalised service means offering a tailored and individual approach to meeting a customer's needs. This can be provided through personal interactions and attention to specific preferences or requirements.