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Economics Unit 3: Growth

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Mind Map on Economics Unit 3: Growth, created by u28bridgesj on 17/02/2015.
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Mind Map by u28bridgesj, updated more than 1 year ago
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Economics Unit 3: Growth
  1. Why do firms grow?
    1. Increase market share
      1. and become the dominant firm in a particular industry
      2. Benefit from greater profits
        1. a firm aims to maximise profits and may be able to achieve through expansion
        2. Increase sales
          1. Through lager brand recognition and more sales outlets
          2. Increase EoS
            1. Driving down LRAC = approaches productive efficiency
            2. Gain power
              1. So as to prevent potential takeovers by larger predatory businesses
            3. Takeovers
              1. Horizontal
                1. Merger between two firms at the same stage of production
                2. Vertical
                  1. Forward
                    1. Next stage of production process
                    2. Backward
                      1. Previous stage in the production process
                      2. Conglomerate
                        1. Unrelated = Spread risk
                      3. Why do some firms break up?
                        1. Too large, diseconomies of scale, LRAC increase. "demerge" e.g British gas into Centrica (gas) Lattice Group (transportation of gas) and BG (gas production
                      4. Why do firms remain small?
                        1. Barriers to entry
                          1. Legal barriers
                            1. Overt Barriers
                              1. Sunk costs
                                1. Must consider when entering a market, unrecoverable
                                2. Niche market business
                                  1. Lack of expertise
                                    1. Optimum efficiency has been achieved
                                      1. Benefits of remaining small
                                        1. Training grants + Government financial support, e/g firms with profits of less than 10,000 are not liable for corporation tax
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