All the ways in which long run increases in capacity and output can reduce average costs
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Internal economies of scale
When a business invests in expanding production
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External economies of scale
Involve unit cost reductions that are shared by a whole industry, rather than a single business. Common when many businesses are concentrated in one location because of appropriately skilled labour and local suppliers.
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Minimum efficient scale
Lowest level of output at which average or unit costs are minimised.
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Brand recognition
Measures the percentage of consumers who recognise a specific brand and associate it with product features. A high percentage makes branding a valuable market tool.
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Diseconomies of scale
Increase unit cost as a business grows. Often associated with communication issues or costs of co-ordination.
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Corporate culture
Grows from the shared values, attitudes, standards and beliefs that characterise an organisation and define its nature.
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Due diligence
Refers to the careful investigations that should take place when major transactions may be affected by the financial or legal situation of the companies concerned.
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Mergers
Combine two businesses under one management which may include individuals from both.
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Takeovers
Occur when one business buys a controlling share (i.e. 51% or more) of another business. It may be hostile or friendly.
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Synergy
The way in which two companies combined may have greater strength than they had as separate entities. They may reap economies of scale and may be able to reduce duplication of some management resources. However, synergy may fail to emerge as expected
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Organic Growth
The expansion of a single business by extending its own operations, using retained profits and loan capital. Usually involves steady growth, planned over a long time period.
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Inorganic Growth
Expansion by merger or takeover of an existing business. Can be a quick way to grow (the business will increase in size immediately) but it can be risky.
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Time series
Provide short and long-term data which can be analysed over a period to provide information on likely future trends.
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Scatter graphs
Show the correlation between two sets of data over a period of time. If the points plotted on the graph seem to be randomly distributed there is no correlation and it is safe to conclude that there is no significant relationship between the two.
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Card 2
Front
Economies of scale
Back
All the ways in which long run increases in capacity and output can reduce average costs
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