0Still learning
Know0
Define the term economies of scale.
Enjoying Flashcards?
Tell us what you think
Define the term economies of scale.
Economies of scale are efficiencies that lower a business's average costs as its scale of output increases.
True or False?
Diseconomies of scale occur when average costs decrease with increasing output.
False.
Diseconomies of scale occur when average costs increase with increasing output.
What is productive efficiency?
Productive efficiency is the point at which a business cannot reduce costs any further as output increases.
What are internal economies of scale?
Internal economies of scale are lower average costs achieved as a business grows, due to factors inside the organisation.
What are financial economies?
Financial economies are achieved when large firms receive lower interest rates on loans than smaller firms, lowering their cost per unit.
What are external economies of scale?
External economies of scale are the lower average costs achieved as the industry grows, due to factors outside of the business.
True or False?
Geographic clusters are a source of external economies of scale.
True.
Geographic clusters are a source of external economies of scale.
Define management diseconomies.
Management diseconomies occur when managers work more in their own interests than in the interests of the firm, reducing efficiency and increasing average costs.
What are communication diseconomies?
Communication diseconomies occur when a firm's organisational structure becomes increasingly complex, resulting in communication difficulties that increase average costs.
True or False?
As output levels increase, total production costs fall.
False.
As output levels increase, total production costs rise, but average costs may fall due to economies of scale.
What are purchasing economies?
Purchasing economies occur when large firms buy raw materials in greater volumes and receive a bulk purchase discount, which lowers the average cost.
Which type of diseconomy may occur when a firm has bases of operations across multiple locations?
When a firm has bases of operations across multiple locations, a geographical diseconomy may occur.
State two reasons why businesses grow.
Businesses grow for a range of reasons, including to:
Increase market share and profitability
Benefit from economies of scale
Gain stronger market power
Access a wider range of finance
Achieve entrepreneurial or social aims
What is satisficing?
Satisficing is when business owners prioritise an acceptable quality of life over profit maximisation.
True or False?
All small firms eventually grow into large companies.
False.
Many business owners intentionally choose to keep their businesses small.
True or False?
Small businesses can often respond quickly to changing customer needs and preferences.
True.
By remaining small, there is a high ability to respond quickly to changing customer needs and preferences and provide a personalised service.
Define the term niche market.
A niche market is a small, specialised market segment for a particular product or service.
What is the difference between profit and profitability?
Profit is the absolute amount of money a company makes. Profitability is a measure of how efficiently a company generates profit relative to its revenue or investment.
True or False?
Small firms are less at risk from changes in the wider economy than large firms.
False.
Small firms are more at risk from changes in the wider economy than large firms, especially during recessions.
True or False?
Changes in technology only benefit large-scale operations.
False.
Technology such as the internet, which offers low cost access to global markets, can work to the advantage of small firms.
Define the term product diversification.
Product diversification is the strategy of introducing new products or product lines to reach new markets or customer segments.
What is meant by monopoly power?
Monopoly power is where a large business dominates a market.
What is meant by the term organic growth?
Organic growth is internal growth generated by gaining greater market share, product diversification, opening new stores, or international expansion.
Define the term vertical integration.
Vertical integration involves a firm merging with another in its supply chain.
What is the difference between forward and backward vertical integration?
Forward vertical integration involves merging with a firm further forward in the supply chain, such as a customer.
Backward vertical integration involves merging with a firm further backward in the supply chain, such as a supplier.
Define the term horizontal integration.
Horizontal integration is a type of external growth where a firm integrates with a competitor in the same industry, e.g. one ice cream manufacturer purchases another.
What is a joint venture?
A joint venture occurs when two businesses join together to share their knowledge, resources, and skills to form a separate business entity for a specified period of time.
Define the term franchising.
Franchising is a business model where the rights to operate a business model, use its branding and software tools, and receive support are sold to a smaller business in exchange for ongoing fees.
What is a strategic alliance?
A strategic alliance is a cooperative arrangement between two or more companies without the formation of a new legal entity.
True or False?
In a joint venture, participating companies retain their individual ownership and control.
False.
In a joint venture, participating companies jointly own and control the new business entity.
What is the main difference in duration between a joint venture and a strategic alliance?
Joint ventures are often intended to be long-term or permanent collaborations.
Strategic alliances can vary in duration and are generally formed for a specific project.
Define conglomerate integration.
Conglomerate integration is a type of external growth where a firm integrates with another in an unrelated industry, e.g. Toyota purchases a company in the drinks industry.