Topic 2

• What is one of the main objectives of growth for a firm?

  To achieve economies of scale
• What are internal economies of scale?

  They occur when a firm becomes larger, leading to a fall in average costs as output increases.
• What mnemonic can be used to remember examples of internal economies of scale?

  Really Fun Mums Try Making Pies
• How does risk-bearing function as an internal economy of scale?

  It allows a larger firm to expand its production range and spread the cost of uncertainty.
• Why do larger firms have an advantage in obtaining financial resources?

  Because banks consider them less risky and offer loans at lower interest rates.
• How do larger firms benefit from managerial economies of scale?

  Larger firms can specialize and divide labor, employing specialist managers to lower average costs.
• What technological advantage do larger firms have?

  They can invest in more advanced and productive machinery, lowering average costs.
• How do marketing economies of scale benefit larger firms?

  Larger firms can spread their marketing budgets over larger outputs, reducing average advertising costs per unit.
• What is the purchasing advantage of larger firms?

  Larger firms can bulk-buy, reducing the cost per unit compared to smaller firms.
• What are external economies of scale?

  They occur within the industry and benefit all firms in a local area.
• Give an example of external economies of scale.

  Improved local roads that reduce transport costs for local industries.
• What happens to average costs as output increases initially?

  Average costs fall as firms take advantage of economies of scale.
• What occurs after the optimum level of output?

  Average costs begin to rise due to diseconomies of scale.
• What is the point of lowest long-run average cost (LRAC) called?

  The minimum efficient scale.
• What is market power in the context of large firms?

  It refers to the dominance large firms have over the market, allowing them to set prices and discourage new entrants.
• How can large firms gain monopsony power?

  By being able to buy stock at lower prices due to their size.
• What was a consequence of Kraft's takeover of Cadbury in 2009?

  There was an increased product range and evidence of reduced competition.
• What gives a firm a competitive advantage?

  When its products are perceived as better than those of its competitors.
• How can a firm achieve a cost competitive advantage?

  By lowering average costs and creating maximum value for consumers.
• What challenges do firms face in maintaining a cost competitive advantage?

  They must offer additional benefits beyond low prices, such as strong brand reputation or exceptional customer service.
• How does increased brand loyalty affect demand?

  It makes demand more inelastic, making it harder for new firms to gain consumer loyalty.
• What is the profit motive for firms growing?

  To earn higher profits and take advantage of economies of scale without experiencing diseconomies of scale.
• What are diseconomies of scale?

  They occur when output exceeds a certain point, causing average costs to increase.
• What is one example of a problem arising from growth related to control?

  It becomes harder to monitor workforce productivity as the firm grows larger.
• How does coordination become a problem in larger firms?

  It becomes more complicated to coordinate thousands of employees.
• What communication issue may arise in larger firms?

  Workers may feel alienated and excluded, leading to decreased productivity.
• What impact can skills shortages have on firms?

  They can affect productivity, wage costs, and international competitiveness.
• What is corporate culture?

  It includes the shared values, implicit beliefs, and norms that influence working life within a firm.
• How can a strong corporate culture benefit a firm?

  It can increase employee productivity and loyalty, contributing to long-term success.
• What is an example of a company known for its strong corporate culture?

  Google
• What are some employee perks that can enhance corporate culture?

  On-site physicians and travel insurance.
• How does corporate culture influence employee behavior?

  It shapes day-to-day behavior and can determine the success of a firm in the long run.
• What are the key components of internal economies of scale?

  • Risk-bearing
  • Financial
  • Managerial
  • Technological
  • Marketing
  • Purchasing
• What are the key problems arising from growth in firms?

  • Diseconomies of scale
  • Potential skills shortages
  • Communication issues
  • Coordination challenges
  • Control difficulties
• What are the benefits of a strong corporate culture?

  • Increased employee productivity
  • Enhanced loyalty towards the employer
  • Improved long-term success of the firm
• What is organic growth also known as?

  Internal growth
• How do firms achieve organic growth?

  By expanding production, increasing output, widening their customer base, developing new products, or diversifying their range
• What strategy might a firm use to sell more products to existing consumers?

  Market penetration
• What investments might firms make to facilitate organic growth?

  Investments in research and development, technology, or production capacity
• Can you give an example of a company that has grown organically?

  Apple