GCSE Business - Why do businesses expand?

Just some revision cards on why business expand.

Enjoy

Good luck in the summer exams. :)

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  • Created by: Rhys B-M
  • Created on: 31-03-13 13:46

Economies of Scale

Larger business have a lower average cost per product as they are able to buy products in bulk, this means that they can pass these economies of scale to the consumer meaning lower prices. This will increase sales and therefore increase profit and the market share of the business.

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Personal Vanity

Many entrepreneurs like the increased power and higher status which comes from owning a large business.

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Financial Support

As a large business, a firm will be more likely to gain financial support, it will be easier for them to get a bank loan and as they employ a lot of people they could even get goverment grants. Large businesses will also find it easier to patch up cash flow problems. Large business are generally less likely to go bust than smaller firms.

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Diversification

As a large business, a firm can produce more products. This means that they can sell into different markets and locations which allows the business to spread the risk of one product failing over many products and make sure that a decline in one product will not harm the business. This means that there is less risk to their profits.

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Domination of Market

The larger a market share of a firm, the more control that firm has over the price of its products, this means it will face fewer threats and may even be able to eliminate rivals by charging prices which the competitors cannot physically match, therefore 'stealing' their sales and increasing their own profits.

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