econ3

economies-of-scale-growth-in-firm

Discuss why firms grow in size

Most firms seek to become bigger – increasing sales and market share. Firms can grow through internal expansion, external growth (merger) or diversification into related industries. The motives for increasing in size can include:Greater sales lead to greater profit, making the firm more attractive to shareholders Successful, growing firms are likely to increase salaries/pay bonuses to managers. Increasing output enables economies of scale, greater efficiency and lower average costs. Increased prestige for managers seeing the firm become more influential and powerful. Greater risk diversification, e.g. when growth comes…