3.9.1 Assessing a change in scale

• Expansion can lead to economies of scale.

  True
• Contraction leads to increased market share.

  False
• What does a change in scale involve for an organization?

  Expanding or contracting operations
• Contraction simplifies management but can demotivate staff.

  True
• Contraction can result in missed opportunities for growth.


  True
• Diseconomies of scale lead to higher average costs
• What happens to the complexity of an organization during expansion?

  Increases
• Weighing the factors of scale is crucial for strategic decision-making.


  True
• Match the demand factor with its effect:

  Price ↔️ Lower quantity demanded

  Income ↔️ Higher quantity demanded

  Consumer Tastes ↔️ Affect demand directly
• What is a revenue advantage of expansion?

  Economies of scale
• Expansion involves increasing the size and scope of operations
• An advantage of expansion is enhanced brand recognition
• Expansion may lead to diseconomies of scale
• Order the effects of economies of scale on a business:

  1️⃣ Lower average costs

  2️⃣ Increased cost efficiency

  3️⃣ Greater competitiveness
• Complexity is reduced during contraction, making management easier.


  True
• Match the change in scale with its effect on complexity:

  Expansion ↔️ Increased management challenges

  Contraction ↔️ Simplified, more focused organization
• Higher prices lead to lower quantity demanded
• When evaluating financial implications, businesses must consider both costs and revenues.
• What are the two main types of changes in scale?

  Expansion and contraction
• Contraction involves actions such as closing locations or reducing production
• One factor to consider during expansion is economies of scale
• Match the factor affecting market demand with its effect:

  Price ↔️ Higher prices lower demand

  Income ↔️ Higher incomes increase demand
• Production capacity refers to the maximum output an organization can produce with its current resources
• Match the type of change with its description:

  Expansion ↔️ Increasing the size of operations

  Contraction ↔️ Decreasing the scope of operations
• What are the two forms a change in scale can take?

  Expansion and contraction
• Match the factor with its effect on expansion or contraction:

  Market Share ↔️ Increased with expansion, decreased with contraction

  Complexity ↔️ Increased with expansion, simplified with contraction

  Economies of Scale ↔️ Achieved with expansion, reduced with contraction
• Increased market share and brand recognition are potential benefits of expansion
• How do economies of scale affect average costs?

  Lower average costs
• Higher income generally leads to lower demand for most products.

  False
• Match the financial aspect with its implication for expansion or contraction:

  Higher operating costs ↔️ Expansion

  Loss of market share ↔️ Contraction
• Diseconomies of scale are a potential disadvantage of expansion.

  True
• Match the advantage with the type of change in scale:

  Reduced costs ↔️ Contraction

  Increased market share ↔️ Expansion
• Increased complexity is a potential disadvantage of expansion
• Reduced operating costs are a financial advantage of contraction.


  True
• When evaluating financial implications, businesses consider costs and revenues
• Steps to develop a strategic plan for a change in scale

  1️⃣ Analyze economies of scale

  2️⃣ Assess market share

  3️⃣ Consider complexity

  4️⃣ Determine the most appropriate strategic direction