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Full revision notes for Edexcel Economics A Paper 2 Macroeconomics
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PEARSON (PEARSON)
Economics A
Unit 3 - Business behaviour and the labour market
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Theme 3
3.1 Business growth
3.1.1 Sizes and types of firms
a) Reasons why firms tend to remain small:
Grow: Stay small:
1. EOS 1. May be expanding too fast
having DOS
2. Increase market power 2. Hv regulations e.g. patents to
prevent firms from growing big
3. Increase sales profit 3. Limited finance to grow
4. Target mass market & diversify 4. Operate in niche market
its products
5. Objectives: profit max 5. Objective: profit satisficing
b) Divorce of ownership control: principal agent problem
Def: Happens when the owners of a business do not control the day to
day decisions made in the business
The agent making decision on behalf of the principle
3.1.2 Business growth
Merger: 2 different companies combine to form a new company
Takeover: One firm take control over another firm retaining over 50%
ownership
Types of growth:
organic growth
(3 types of mergers)
horizontal integration
forward and backward vertical integration
conglomerate integration
Type: Def: Pros: Cons
Organic A business 1. Avoid culture clash 1. Shareholders unhappy
growth expands 2. May not have becoz growth tends to
internally e.g. miscommunication be slow, profit return
extending 3. Tends to grow and would be low
product range develop at a slow 2. Could be more
and stable pace expensive to develop
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