Lecture notes
Class / Revision notes for theme/paper 3 for Economics Alevel
- Module
- A level Economics
- Institution
- A Level Economics
Prepare for A-levels - Edexcel Economics Alevel
[Show more]
Seller
Follow
Content preview
3.1.2 Business GrowthMethods of Growth:
1) Organic / internal Growth: through sale of shares - increased investment - re-
sources of the company —RISK FREE but SLOW
2) External Growth: through mergers and takeovers
* Merger: the joining of 2 or more firms under a common ownership
Internal growth:
- Safer
- Economies of Scale
- Slower
External growth:
- Quicker
- Riskier
Motives for Mergers:
1) Quick Growth
2) Economies of Scale
3) May lead to Monopoly Power
4) Valuation of company rises - shareholders benefit
5) Easier Market access
6) Control of source of raw materials
Types of Mergers:
1) Horizontal integration :
- Same industry and same production levels
- Usually competitors
- Usually in industries with fewer firms = less competition / more market share and
power
* Advantages:
- Internal Economies of scale - reduction in costs
- Elimination of competition - increased market share + power
- No need for training - businesses grow in areas where they already have knowledge
- Cheaper / faster than organic growth
* Disadvantages:
- High Initial costs
- Poor management of integration
- Bureaucracy
- Investigation -competition authorities
,2) Vertical Mergers
- Same industry different production levels
- Forward Vertical: a supplier merging with his buyer
- Backwards Vertical: a purchaser merging with a supplier
*Advantages:
- Integration with supplier can reduce costs
- More control over the market (supplier and producers in one)
*Disadvantages:
- High costs of mergers
- Merger in area with limited knowledge and skills
3) Conglomerate Merger:
- Firms with no common interest that produce similar but related products
- Eg: Google and Youtube
*Advantages:
- Spreads out and reduces risk
- Offers opportunities for asset stripping - eg: patents
*Disadvantages:
- Competition is eliminated: does not benefit consumers / communities
- High initial costs
- No experience of the functionalities of the other business = mismanagement
Constraints on Business Growth:
- Limited size of the market
- For smaller firms: not easy to access finance to grow - if they want loans, they have
to pay higher interest rates etc
- Some are not willing to take up the risk of growing
- Patents and copyrights - LEGAL LIMITATIONS may exist
3.2.1 Business Objectives:
- A firm usually wants to achieve objectives set by its stakeholders -owners/sharehold-
ers/directors/managers/workers
- They may include:
1)Profit Maximisation
2) Revenue Maximisation
3) Sales Maximisation
, 1)Profit Max
(MC=MR). 2) Revenue Max
(MR=0) 3) Sales Max (AC=AR)
Profit Satisfying:
- When managers seek to maximise their own objectives (eg: sales max) while mak-
ing the minimum amount of profit required to keep shareholders happy.
- Often when increase in sales = increase in pay for managers
- All stakeholders have some demands, shareholders that they make profit, man-
agers/workers/directors are concerned with their salaries, consumers want quality
and governments, that firms obey laws
How are subsidies used to correct market failure
Collusion advantages disadvantages - small firms /
large firms
- Contestability 25 mark
3.3.1 Revenue
Total Revenue: TR = Price x Quantity
Average Revenue: AV = Total Revenue x Quantity
Marginal Revenue: MR = ΔTotal Revenue x ΔQuantity
— Total Revenue Max occurs when MR = 0
— At the TR Max, the PED is unitary elastic, PED = 1
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller nefelivasiliou. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £10.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52510 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now