1.5 Growth and Evolution

When a business increases its size of operations and becomes more cost efficient, this is known as economies of scale.

• True

• False

Diseconomies of scale occur if a firm grows beyond its ability to operate efficiently.

• True

• False

Most businesses attempt to grow by reinvesting profits back into the business. This is a form of internal growth.

• True

• False

A large manufacturer of toilet rolls that takes over its competitor is an example of horizontal integration.

• True

• False

An operator of a national cinema chain that buys a film production studio is an example of vertical integration.

• True

• False

Financial economies of scale mean that large firms can make cost savings by greater use of large-scale mechanical processes and specialist machinery.

• True

• False

Losing some control over the running of a business is a disadvantage for a franchisor.

• True

• False

When two businesses work together on a project for a finite period of time and create a separate business division or entity, this is known as a joint venture.

• True

• False

The ability of a large business to negotiate lower rates of interest on loans with commercial banks is an example of purchasing economies of scale.

• True

• False

When a business grows very large, sometimes the production costs per unit can increase. This is known as diseconomies of scale.

• True

• False