Business Growth

Cards (30)

  • Firms grow to increase profits, gain monopoly power, and achieve greater security
  • Economies of scale reduce the costs of production for growing firms.
  • A larger firm gains a greater share
  • Monopoly power allows firms to influence prices and restrict market entry.
  • A larger firm builds assets and cash reserves to increase financial security
  • The principal agent problem arises from the separation of ownership
  • Steps in the governance of a firm
    1️⃣ Shareholders elect Board of Directors
    2️⃣ Board oversees management
    3️⃣ Chief Executive and managers control operations
    4️⃣ Shareholders can vote on directors
    5️⃣ Buying and selling shares influences strategy
  • The principal agent problem occurs when agents prioritize their own benefits over the principal's.
  • The UK economy is divided into the private and public sectors.
  • Organic growth involves increasing a firm's output
  • Integration is often expensive, time-consuming, and high risk for firms.
  • Vertical integration involves firms in the same industry at different stages of production
  • Tesco's takeover of Booker in 2018 is an example of vertical integration.
  • Backward integration allows firms to control the quality of their supplies
  • Horizontal integration involves firms in the same industry at the same stage of production.
  • Forward integration can reduce prices for consumers
  • Forward integration can restrict competitors' access to retail outlets.
  • What type of integration occurs when firms in the same industry at the same stage of production merge?
    Horizontal integration
  • Horizontal integration increases market share
  • Horizontal integration reduces risk by diversifying into new markets.
    False
  • What type of integration involves firms in different industries with no obvious connections?
    Conglomerate integration
  • General Electric is a successful example of conglomerate integration
  • Conglomerate integration allows individual parts of the business to expand more easily.
  • Match the constraint on business growth with its description:
    Size of the market ↔️ Limited customer demand
    Access to finance ↔️ Inability to secure loans
    Owner objectives ↔️ Desire to avoid risk
    Regulation ↔️ Government restrictions on growth
  • Retained profits are always sufficient for firms to finance growth.
    False
  • What is a common objective for owners who do not want their business to grow further?
    Avoid extra risk
  • A demerger involves breaking a single business into two or more components
  • Reasons for demergers
    1️⃣ Lack of synergies
    2️⃣ Increased company value
    3️⃣ Focus on core business
    4️⃣ Avoid competition authorities
  • Why might a company choose to demerge to focus on individual markets?
    Increase efficiency
  • Demerging may lead to a loss of economies of scale for the business.