E.19: How firms grow

What is financial capital?

• The physical buildings a company owns

• The skills and knowledge of employees

• Assets needed by a company to provide goods or services, typically money

• The reputation of a company in the market

What is a horizontal merger?

• Combining companies from unrelated industries

• Combining companies that offer different kinds of goods/services

• Combining companies that offer the same kinds of goods/services to the same types of customers

• Combining companies at different stages of production

What is a vertical merger?

• Combining companies that offer the same kinds of goods/services but at different stages of production

• Combining companies that offer the same kinds of goods/services to the same types of customers

• Combining companies that are geographically separated

• Combining companies from unrelated industries

What is a conglomerate merger?

• Combining companies that are competitors

• Combining companies that share the same CEO

• Combining companies from unrelated industries

• Combining companies at different stages of production

Why might firms choose to reinvest their financial capital?

• To liquidate assets

• To fuel their growth

• To reduce their workforce

• To pay off existing debts

What is one reason for a horizontal merger?

• To ensure a more reliable supply chain

• To reduce competition and potentially raise prices

• To diversify their revenue streams

• To gain control over key inputs

What is one reason for a vertical merger?

• To increase market power

• To diversify product offerings

• To ensure a more reliable supply chain

• To merge with competitors

What is one reason for a conglomerate merger?

• To diversify their revenue streams

• To reduce dependency on external suppliers

• To achieve economies of scale

• To integrate supply chains

What could be a benefit of reinvesting in expansion?

• Decreasing market share

• Entering new markets or capturing more market share

• Reducing the number of employees

• Selling off assets

What is a potential benefit of a horizontal merger?

• Access to new markets

• Controlling more stages of production

• Reducing competition and increasing market power

• Diversifying revenue streams