Business Studies - Growth of Firms - Internal Expansion

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Reasons for Growth

  • Economies of scale - Larger firms can produce at lower average cost than smaller firms. They can pass on these economies of scale to consumers as lower prices. This will help them increase their sales, their market share and their profits.
  • Diversification - Larger firms can afford to produce more products than smaller firms. They can sell into different markets and so reduce the risks that a decline in sales of one product will harm the business. This means there's less threat to their profits.
  • Financial support - Larger firms are less likely to go bust than smaller firms. That's mainly because they can borrow money more easily from banks so they will find it easier to survive cash flow problems. Larger firms are also more likely to receive financial support from the government than smaller firms because they employ lots of people.
  • Personal vanity - Some owners enjoy the power and status that comes from owning a large business.
  • Domination of the market - The larger the market share a firm has, the more…


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