Theme 2:

• Internal Expansion

  Organic growth, a business expands using its own resources and capital
• External Expansion

  A business grows by taking over or merging with another business
• Economies of Scale

  Costs fall when a business operates on a large scale
• Diseconomies of Scale

  Some costs increase in large businesses, some difficulties arise
• Benefits of Expansion

  Purchasing economies of scale and Technical economies of scale
• Risks of Expansion

  Increased management and staff costs, communication, motivation and productivity problems
• Purchasing Economies of Scale

  Buying large quantities from suppliers means lower unit prices
• Technical Economies of Scale

  Having bigger, more advanced machinery can improve productivity and lower unit costs
• Average unit cost

  The average amount it costs to produce one product
• Law of increased dimensions

  Size and cost don't increase at the same rate i.e twice as big is not twice as expensive
• Bulk buy discount

  The ability to get cheaper unit prices when ordering large quantities from a supplier
• Production capacity

  The quantity of products a business is able to produce in a given time
• Motivation

  How driven staff are to work well and be productive
• Span of control

  The number of staff supervised by a manager
• Investment


  Money put into a business to create a return, or profit to the investor
• Capacity


  The maximum output of goods and services a business can produce in a given time with the resources it has