Wednesday 23 May 2012

Revision lesson 21 - Benefits and challenges to growth

In the news: Alliance Boots

Economies of scale this is the term used to describe the ways in which the cost per item produced falls as a business gets bigger.  These fall into different classifications as follows:

  • Bulk buying economies
  • Financial economies
  • Technical economies
  • Managerial economies

Did you know... that when two businesses merge, it is possible for both companies to keep their separate identities.  This is because they are both strong brands which will both suffer with a name change

Group activity Produce a powerpoint or a podcast, explaining how businesses can reduce costs for each of the economies of scale mentioned in the text above

Discussion Managers of large companies are sometimes accused of of not worrying too much about what the owners, the shareholders, want from the business.  Very likely shareholders are looking for high profits so they receive a good dividend and the value of their shares will rise.  Discuss ways in which managers of large businesses could be held more accountable to what the shareholders want.

Web based activity Purchasing economies of scale are the discounts that businesses get by buying  large quantities.  Research the price of sports clothing or footwear on the internet to discover how big a discount can be achieved by buying in bulk.  You will need to search for a wholesaler for a product that interests you. 

Quick Quiz 20 Benefits and challenges of growth
  1. In which city did boots first open a shop?
  2. In which year did Boots merge with Alliance UniChem?
  3. What is the most important reason why businesses merge?
  4. Give another name for bulk buying economies of scale
  5. What is the name of the economy of scale gained by using machinery for more hours each week?
  6. What is a horizontal merger?
  7. Outline what is meant by the optimum size of a business.
  8. Explain why many merged businesses keep their own separate identities.
  9. Explain how flow production can result in diseconomies of scale.
  10. Explain what is meant by the divorce between ownership from control

Nine mark question 

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