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Costs, Revenues and Profits

The growth of firms: How and why firms might grow

  • 3 things to know
  • A2 Units 3 and 4

Overview

Recall questions on How and why firms might grow.

What you need to know

Answer each one before you reveal it.

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Evaluation

Why might a firm want to grow?

Key term

Why might a firm pursue growth in order to achieve economies of scale?

Key term

How does growth help a firm increase its market share?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    Why might a firm pursue growth in order to achieve economies of scale?

    Model answer

    By expanding output, a firm can reduce average costs through technical, managerial, purchasing, financial, or marketing economies, improving competitiveness and profitability.

  2. 2

    How does growth help a firm increase its market share?

    Model answer

    Expansion allows a firm to sell more output relative to competitors, capturing a larger proportion of total industry sales.

  3. 3

    In what way does firm growth lead to greater market power?

    Model answer

    A larger firm can exert more influence over price, suppliers, and market conditions, potentially acting as a price-maker rather than a price-taker.

  4. 4

    How does growth enable a firm to diversify risk?

    Model answer

    Expanding into different products, markets, or regions reduces dependence on a single revenue stream, so poor performance in one area can be offset by success elsewhere.

  5. 5

    Why might a firm grow to access new markets and resources?

    Model answer

    Growth can open opportunities in different geographic regions or customer segments and secure access to raw materials, labour, or technology not available domestically.

  6. 6

    Define internal (organic) growth.

    Model answer

    Internal growth occurs when a firm expands using its own resources, such as reinvesting profits, increasing output capacity, or developing new products.

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