Question 1

Growth can be either internal or external. An example of internal growth is

Accepted Answer

A)  a horizontal merger. 
B)  rationalisation. 
C)  product differentiation. 
D)  a vertical merger. 
A)  a horizontal merger. 
B)  rationalisation. 
C)  product differentiation. 
D)  a vertical merger. C

Question 2

Fear of take- overs will lead firms to maximise

Accepted Answer

A)  profits. 
B)  growth. 
C)  sales. 
D)  sales revenue. 
E)  managers' utility. 
A)  profits. 
B)  growth. 
C)  sales. 
D)  sales revenue. 
E)  managers' utility. A

Question 3

External expansion is where a firm grows by becoming multinational.

Accepted Answer

A) True 
 B)False  FALSE

Question 4

Transaction cost theories of the firm cannot explain external growth but can explain internal growth.

Accepted Answer

A) True 
 B)False

Question 5

Why do some firms attempt to integrate vertically?

Accepted Answer

Vertical integration can lead to many po

Question 6

The move by supermarkets into insurance and banking is diversification.

Accepted Answer

A) True 
 B)False

Question 7

Tapered vertical integration is where a firm is partially integrated with an earlier stage of production; it produces some of an input itself and buys some from another firm.

Accepted Answer

A) True 
 B)False

Question 8

The merger of a clothing firm and a software producer would be a_________merger.

Accepted Answer

A)  vertical 
B)  conglomerate 
C)  horizontal 
D)  hostile 
E)  homogeneous 
A)  vertical 
B)  conglomerate 
C)  horizontal 
D)  hostile 
E)  homogeneous

Question 9

What is internal expansion?

Accepted Answer

A)  Merging with a competitor 
B)  Increasing capacity by building a new plant 
C)  Increasing the efficiency of employees 
D)  Moving along a short- run average cost curve to the right 
A)  Merging with a competitor 
B)  Increasing capacity by building a new plant 
C)  Increasing the efficiency of employees 
D)  Moving along a short- run average cost curve to the right

Question 10

The valuation ratio of a firm is found by dividing its stock market value by its published balance sheet value.

Accepted Answer

A) True 
 B)False

Question 11

What is a strategic alliance?

Accepted Answer

A strategic alliance is a collective ter

Question 12

The merger of two clothing firms would be a 	merger, whereas the merger of a clothing firm and a software producer would be a 	merger.

Accepted Answer

A)  vertical; conglomerate 
B)  conglomerate; vertical 
C)  homogeneous; natural 
D)  horizontal; conglomerate 
A)  vertical; conglomerate 
B)  conglomerate; vertical 
C)  homogeneous; natural 
D)  horizontal; conglomerate

Question 13

What are the three principal factors which might encourage a firm to diversify?

Accepted Answer

• Stability: If a firm is only producing

Question 14

What are vertical restraints?

Accepted Answer

When firms at different stages of produc

Question 15

Which of the following results of mergers is not likely to be in the interest of customers?

Accepted Answer

A)  Diversification 
B)  Increased market value 
C)  Increased market power 
D)  Economies of scale 
E)  Growth 
A)  Diversification 
B)  Increased market value 
C)  Increased market power 
D)  Economies of scale 
E)  Growth

Question 16

What is a consortium?

Accepted Answer

A)  Two or more firms work together on a project and create a separate company to run the project 
B)  Two or more firms set up a jointly owned subsidiary 
C)  Two or more firms merge 
D)  Two or more firms set up a jointly owned new independent firm 
A)  Two or more firms work together on a project and create a separate company to run the project 
B)  Two or more firms set up a jointly owned subsidiary 
C)  Two or more firms merge 
D)  Two or more firms set up a jointly owned new independent firm

Question 17

The merger of a bus company and a train company would be a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 18

It is claimed that growth through diversification is beneficial for a firm because it allows the spreading of risks. Explain why.

Accepted Answer

Diversification may spread risks for a f

Question 19

Which one of the following is a disadvantage of vertical integration?

Accepted Answer

A)  Increased barriers to entry 
B)  Reduced uncertainty 
C)  Exploitation of economies of scale 
D)  Less ability to respond to changing market demand, with secure supply sources 
A)  Increased barriers to entry 
B)  Reduced uncertainty 
C)  Exploitation of economies of scale 
D)  Less ability to respond to changing market demand, with secure supply sources

Question 20

The minimum efficient scale is

Accepted Answer

A)  the plant size at which marginal cost is lowest. 
B)  the minimum scale at which the firm can make a profit. 
C)  the plant size at which all economies of scope are first realised. 
D)  the plant size at which all economies of scale are first realised. 
A)  the plant size at which marginal cost is lowest. 
B)  the minimum scale at which the firm can make a profit. 
C)  the plant size at which all economies of scope are first realised. 
D)  the plant size at which all economies of scale are first realised.

Exam 15: Growth Strategy

Growth can be either internal or external. An example of internal growth is

Fear of take- overs will lead firms to maximise

External expansion is where a firm grows by becoming multinational.

Transaction cost theories of the firm cannot explain external growth but can explain internal growth.

Why do some firms attempt to integrate vertically?

The move by supermarkets into insurance and banking is diversification.

Tapered vertical integration is where a firm is partially integrated with an earlier stage of production; it produces some of an input itself and buys some from another firm.

The merger of a clothing firm and a software producer would be a_________merger.

What is internal expansion?

The valuation ratio of a firm is found by dividing its stock market value by its published balance sheet value.

What is a strategic alliance?

The merger of two clothing firms would be a merger, whereas the merger of a clothing firm and a software producer would be a merger.

What are the three principal factors which might encourage a firm to diversify?

What are vertical restraints?

Which of the following results of mergers is not likely to be in the interest of customers?

What is a consortium?

The merger of a bus company and a train company would be a horizontal merger.

It is claimed that growth through diversification is beneficial for a firm because it allows the spreading of risks. Explain why.

Which one of the following is a disadvantage of vertical integration?

The minimum efficient scale is

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