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Edexcel Economics A2 Unit 3

Business Economics and economic efficiency

How do firms grow?

Expanding scale of operation & increasing market share
Horizontal: merger between 2 firms in the same stage of production
Vertical: merger between firms at different stages of the production
process (forward/backwards)
Conglomerate: merger between…

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branding/ad campaigns
known as sunk costs as money cannot be recovered if fails
potential new firms will have to spend the same on market if they are
to compete on a level playing field

Pricing barriers

Predatory: p is below costs to drive out other firms that cannot afford to…

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Tax thresholds & other benefits of remaining small

Small= access to grants & financial support, not liable for certain taxes

Why do some firms break up?

Too large=Diseconomies of scale
Growth of output= lose focus & control= LRAC increase
Break up to reduce these BAD impacts = smaller firms able…


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