Share UNIT 1.5 GROWTH AND EVOLUTION
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Define the term Economies of Scale
The reduction in per-unit production cost as a business grows.
Define the term Internal Economies of Scale
Cost reductions that can be achieved inside the company when it expands its output.
Define the term External Economies of Scale
cost-savings that occur due to External factors in the region or industry that are not under the control of the business
State 3 types of Internal Economies of Scale
Financial, Purchase, Technical, Managerial and Marketing
Explain how Innovation, Infrastructure or Specialization can cause Economies of Scale
Innov (businesses+institutions improve products/services -low research costs), Infrast (fast transp prods/employees), Spec (low training/recruit costs, suppl)
Define the term Diseconomies of Scale
The increase in the per-unit production cost as a business grows. (inneficiency)
Define the term Internal Diseconomies of Scale
an increase in average unit cost, usually explained by the difficulty of managing internally large operations
Define the term External Diseconomies of Scale
the increased unit cost of production for a business due to the expansion of the industry in which the business operates
State two reasons for an External Diseconomy of Scale
Pollution, Increased Regulation, Limited infrastructure, Limited natural resources
Explain one of the reasons for Internal Diseconomies of Scale
Management (poor coordination/cooperation, internal rivalry), Incr Workforce (bureaucracy $$), Communic (worldwide channels - bureaucracy)
explain why businesses decide to stay small
+control, -risk, optimal profit, specialize on niche mrkt, limited $$ sources, sustainability, strong social networks (resilience; adap to changes)
State 3 Methods of External Growth
Merger, Acquisition, Joint Venture, Franchise, Strategic Alliance, Takeover
Examine two different types of External Growth
Merger, Acquisition, Takeover, Joint Venture, Franchise, Strategic Alliance
Describe one difference between Merger and Takeover
merger = friendly or voluntary (common agreement between firms). Takeover = hostile or involuntary (usually get >= 51% of shares)
