Why do businesses grow?
- AS, A Level, IB, BTEC National
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 19 Dec 2018
There are many reasons that help to explain the motivations for businesses to grow over time.
- Economies of scale in the long run increase the productive capacity of the business whilst also leading to lower average costs (LRAC). Experiencing economies of scale help a business to raise their profit margins at a given market price
3.Market power motive:
- Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector.
- This is known as achieving economies of scope and is a feature of conglomerates
5.Managerial motives: Behavioural theories of the firm predict that business expansion might be accelerated by the demands of senior and middle managers whose objectives differ from major shareholders. Managers may want the power and kudos that comes from running larger corporations.
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