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GROWTH - Coggle Diagram
GROWTH
REASON TO GROW
achieve economies of scale
EOS = reductions in unit costs caused by the growth of a business
managerial EOS = growing businesses are more likely to hire specialist managers to handle particular areas
purchasing EOS = where firms are able to negotiate a cheaper unit cost for supplies they buy as they buy in create bulk following an increase in the scale of their operations
as a firm gets bigger = access to more resources = the av cost decrease as they can invest in better capital and managers
owners/shareholders/managers desire to run a larger business and continually seek to grow it
owenrs/shareholders desire high levels of market share and profitability
desire for stronger market power (monopoly) over its customers and suppliers
larger firms = easier access to finance
ISSUES FROM ARISING GROWTH
diseconomies of scale
company grows too large = difficult to manage and control its operations
cost per uni increase due to inefficenies
internal communication
rapid growth strain communication channels or cause miscommunication = delays/errors/missed opps
overtrading
takes on more business than it can handle = strain on its resources or inability to meet its financial obligations = cash flow problems or decrease satisfaction
EXTERNAL EOS
increase in the size of the industry in which the firm operates
benefit from lower AC generated by factors outside business
business grows = increase its scale of output = generating efficiencies that lower its average costs (costs per unit) of production
helps larger firms lower their costs of production beyond what small firms can achieve
firm continues increasing its sales of output = reach where av costs increase
= diseconomies of scale
INTERNAL EOS
result of growth in the scale of production WITHIN the business
firms benefit from lower AC generated by factors inside business
TYPES
managerial economies = hire specialist managers who are more feet at taks = efficiency lowers average cost
technical = firms use machineries at a higher level of capacity due to the increased output = spreads costs of machinery over more units = lower AC