Why do businesses pursue growth in relation to their cost structure?

The objectives behind growth, internal and external economies of scale, market power, market share and brand recognition, and the diseconomies of scale, communication problems and overtrading that follow when a business grows too far.

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Key term

What are technical, purchasing and managerial economies of scale?

Evaluation

Why do businesses grow to gain market power and share?

Key term

Why do businesses grow, and what are diseconomies of scale?

Key term

Identify one problem arising from business growth related to organisational structure.

Key term

What is the key distinction between economies of scale and diseconomies of scale?

Questions from this subtopic

Each one with the model answer underneath.

1
Why do businesses pursue growth in relation to their cost structure?
Model answer
To achieve economies of scale, which reduce average costs as output increases.
2
What are the two broad categories of economies of scale?
Model answer
Internal economies of scale (arising from within the firm) and external economies of scale (arising from industry growth).
3
What are purchasing economies of scale?
Model answer
Cost savings from buying inputs in bulk, allowing the firm to negotiate lower unit prices from suppliers.
4
What are technical economies of scale?
Model answer
Cost savings from using larger, more efficient machinery or production processes that are only viable at higher output levels.
5
What are managerial economies of scale?
Model answer
Cost savings from employing specialist managers whose expertise can be spread across a larger output, reducing average management costs per unit.
6
What are financial economies of scale?
Model answer
Cost savings from larger firms being able to access finance at lower interest rates and on more favourable terms than smaller firms.

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