Questions on Business Growth

1. Private firms tend to maximize profit whereas state owned enterprises are likely to
maximize social welfare [social welfare; profit]

2. Save the Children is an example of a social enterprise company [state-owned, social

enterprise, not-for-profit, private]

3. A niche market is one where:

a. The market is large
b. The market is dominated by family businesses
c. Firms are likely to experience economies of scale
d. Demand for the product is specialized and limited

4. Economies of scale are likely to be experienced by those firms:

a. With a small market share
b. With a large market share
c. That are family owned
d. That are new

5. Economies of scope is when:

a. Unit costs reduce as output increases
b. Unit costs reduce as product variety increases
c. Revenue increases as output increases
d. Profit increases as output increases

6. In large businesses, shareholders are known as principles and managers are known as
agents. The principal-agent problem refers to when the two groups have contradictory
objectives. Shareholders want to maximize dividends whereas managers want to
maximize sales. [sales, dividend, similar, contradictory, principal, agent]

7. Internal growth is where:

a. Firms in the same industry merge
b. Two firms in the same production process merge
c. Firms grow by being successful

8. The printing company Anim8 buying a paper manufacturer is an example of:

a. Horizontal integration
b. Forward vertical integration
c. Backward vertical integration
d. Conglomerate integration

9. The purchase of Instagram by Facebook is an example of:

a. Horizontal integration
b. Forward vertical integration
c. Backward vertical integration
d. Conglomerate integration

10. Which of the following are constraints on business growth:

a. Regulation
b. Increasing market share
c. Gaining expertise
d. Marketing barriers
e. Access to finance
f. Owner objectives

1
 g. Benefits of economies of scale

Exam practice questions:

1. In 2016, the insurance group Esure undertook a demerger with its GoCompare price
comparison website. [1 mark]

(a) The most likely reason for this demerger was to:
i. Benefit from external economies of scale
ii. Benefit from internal economies of scale
iii. Focus more on its core business
iv. Increase its market share

2. Discuss the likely strengths and weaknesses of family businesses [12 marks]

3. BT Group, which includes BT Openreach and BT Retail, reported a rise in profit as

revenue increased following the integration of the consumer mobile business, EE. BT
finalised the takeover of EE in August 2016, and the integration has resulted in BT
controlling 35% ofthe mobile consumer market. The profit of the UK-based
telecommunication group in its second quarter 2017 rose to £566 million.
BT Group chief executive Gavin Patterson said: “We will operate a multi-brand
strategywith UK customers being able to choose a mix of BT, EE or Plusnet services,
dependingon which suits them best. The acquisition enables us to offer great value
bundles ofservices and customers are set to be the winners as we compete for their
business”.

Examine the likely benefits to consumers of the integration between BT and EE. [8
marks]