• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Discuss why do firms want to grow and means of growth

Extracts from this document...


"Discuss why do firms want to grow and means of growth" Mazin Abdel-Rahman The existence of internal economies of scale provides a major force encouraging firms to enlarge. There are different ways in which firms can grow, generally they can be described as internal and external growth. Internal growth occurs when firms use their own profits to finance an expansion of capacity. External growth occurs when firms integrate in the form of mutual agreement in the form of a merger or in the form of a takeover, where one firm acquires control of a minimum fifty-one percent of another firms equity. * Integration There are two types of integration, vertical and horizontal, vertical integration in further split into two types, backward and forward integration. ...read more.


When backwards integration occurs, firms safeguard the production and quality of vital inputs * Efficiency Increased efficiency plays an important role in the integration of firms. Often the management of one firm sees another firm's management as incompetent, with the belief that they could increase the efficiency of the other firm. It is also highly likely that the advantages of the economies of scale may be gathered after integration. Furthermore if the particular stage of production can be preformed more efficiently or if the combined value of the two firms outweighs the individual value, an incentive for integration id put forward. * Improved image A major motivating force behind forward integration is the improvement of retail outlets, thus increasing sales and consumer satisfaction. ...read more.


For example if firm (A) integrates with a firm that provides raw material vital for a specific product, a monopolistic position is fabricated. * Efficiency A factor stimulation horizontal integration is the likelihood of increased efficiency. This occurs more in horizontal integration, as there is greater scope for the economies of scale to be reaped, notably in technical economies. Even though there is an emphasis in the advantages of vertical and horizontal integration, one major reason for integration is diversification. Firms seek to create large conglomerate enterprises, through diversification, as this growth increases the economies of scale. More likely a reason, is security, as firms attempt to produce more than one product because production of a single good, is a high risk venture, because if demand falls, the firm would be forced to shut down. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Microeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Microeconomics essays

  1. By means of one example, explain the advantages and disadvantages of linear programming as ...

    X1=number of units of the Deskpro X2=number of units of the Portable MAX PROFIT: 50X1+40X2 3X1+5X2?150 ASSEMBLY TIME 3X1+5X2+S1=150 X2?20 Portable DISPLAY X2+S2=20 8X1+5X2?300 warehouse space 8X1+5X2+S3=300 x1,x2?0 x1,x2,S1,S2,S3?0 X2 If we set x2=0 s1=0. 60 warehouse capacity x1=50,x2=0,s1=0.s2=20,s3=-100 50 40 30 display unite 20 10 Feasible regions assembly time

  2. The hypothalamic hormone, growth hormone-releasing hormone (GHRH).

    The final concentrations of GHRH and GHS were 10-9M and 10-11 M, respectively. After 20 had elapsed, the media were collected as described in experiment 1. Again, there were four dishes of cells per treatment. Inhibitor Experiment 2 The procedure for the second inhibitor experiment was the same as for the first one, however the inhibitors themselves were different.

  1. Explore the characteristics of "natural monopoly", and by doing so, relate it to the ...

    Second, the industry may be a natural monopoly as we mentioned a while ago. The natural monopoly's production exhibits decreasing average cost (economies of scale) in the output range that would meet the entire market demand at a profitable price and it is desirable to have only one firm to minimise the production cost.

  2. Australian Wine Industry

    References: Australian Wine on Line, 2002, Australian Wine Industry Overview,http://www.winetitles.com.au/awol/overview, 10/10/03. ABC News on line, 2003, Winemakers predicts industry shake-up, http://www.abc.net.au/news/newsitems/s877838.htm, 22/10/03. ABS, 2003, Average Weekly Earnings, Australia,http://www.abs.gov.au/Ausstats/abs%40.nsf/e8ae5488b598839cca25682000131612/ba84bbb55b643021ca2568a90013934e!OpenDocument, 21/10/03. ABS (Australian Bureau of Statistics), 2003, Australian Wine and Grape Industry, http://www.abs.gov.au/ausstats/abs@.nsf/0/9C2B3279B16258F0CA2568A9001393C7?Open&Highlight=0,wine, 19/10/03.

  1. Monopoly. A monopoly may arise as a result of natural forces, or it ...

    a market, the requisite size can be reached within weeks through mergers or takeovers. Equally, where there are too many medium-sized firms to any to have any real expectation of acquiring monopoly power, a cartel instantly bestows such power upon them all.

  2. Operation management

    At present expansion is under way to double the capacity. � The factory has an imposed taxes � The factory is state owned, so that, it has a limited flexibility. Quality, Customer Service and Cost Challenges To succeed in global competition in the twenty first century, companies must quickly develop innovative products and respond quickly to customers' needs.

  1. Microsoft Monopoly

    Probably the most controversial issue was the practice of tying, Microsoft would use their leverage in one market area. For example, Microsoft would use their graphical user interface to sell their operating system. In the end, Microsoft decided sign the settlement agreement.

  2. Walmart, Monopoly.

    "Buyer power" is the ability of the demand side of the market to exercise market power over suppliers to reduce prices below the level that would emerge in the competitive market. This ability gives rise to monopsonies, which are the mirror images of monopolies in that there is a transfer

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work