Expanding A Business
Overview
A bakery that makes 200 loaves a day and a bakery that makes 20,000 do not simply differ in size. The larger one buys flour by the tonne at a price the smaller one will never be offered, runs an oven the smaller one could never fill, and spreads the cost of its accountant across a hundred times as many loaves. That is why growth is worth chasing. It is also why the larger bakery has three layers of management, a communication problem and staff who have never met the owner.
In this lesson you will learn the ways a business can get bigger, from opening new outlets and selling online to franchising, outsourcing, mergers and takeovers, and the arguments for and against each. You will learn what economies of scale actually are, with the two the specification names in particular, and what diseconomies of scale are and why they set in. And you will learn to calculate average unit cost, which is the number that turns the whole argument from an opinion into arithmetic.
Objectives
- Methods of expansion.
- Benefits and drawbacks of expansion.
- Economies of scale.
- Diseconomies of scale.
Mind map
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Expanding A Business. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which one of the following is an example of external growth? A. Buying a competitor B. Launching an online shop C. Opening a second factory D. Training staff to work faster Answer: A
- A factory has fixed costs of 90,000 and variable costs of 6 per unit. It produces 10,000 units. What is its average unit cost? A. 6 B. 9 C. 15 D. 150,000 Answer: C
- Which one of the following is a cause of diseconomies of scale? A. Buying raw materials in larger quantities B. Poor communication between departments C. Spreading fixed costs over more units D. Using larger and more efficient machinery Answer: B
- Which one of the following best describes purchasing economies of scale? A. Borrowing money at a lower rate of interest because the business is large B. Buying in large quantities and being charged a lower price per unit C. Employing specialist managers for each department D. Using machinery that only pays for itself at high output Answer: B
- Which one of the following is a drawback to a franchisor of expanding by franchising? A. Growth is funded by the franchisee rather than the franchisor B. The franchisor receives a share of the franchisee's profits C. The franchisor has less direct control over the quality of service D. The brand becomes known in more towns Answer: C
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