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Firm Boundaries - The Horizontal Boundaries of the Firm

8 important questions on Firm Boundaries - The Horizontal Boundaries of the Firm

What is economies of scope and what is the advantage?

Economies of scope means that there is an increase in the varieties of goods/services produced. Mostly is it the case that it is cheaper to produce two or more different products together than producing them seperatly.

Where do scale economies come from?
Name 4 that have to do with production and 3 that aren't related with production.

Production:

1. Indivisibilities and spreading of fixed costs

2. Increased productivity of variable inputs

3. Inventories

4. Engineering principles associated with the 'cube-square rule'

Not with production:

1. Purchasing

2. Advertising

3. Research and development

Explain why purchasing can cause economies of scale?

Most of the time it is cheaper to buy a bulk than single products. Therefore a bulk is more likely to be bought.

For what 3 possible reasons will a supplier care if sales come from one or many different buyers?

1. Less costly to sell a bulk because of extra costs per selling, like contract, delivery.

2. Small price difference is bigger when buying in bulk.

3. When the supplier is unsuccelful making business with a large purchaser, it loses money. When he offers a discount, his cash flow is safe.

What is umbrella branding and why can it be profitabel (2)?

When a firm offers a broad product line under a single brand, like samsung tv's, dvd-players etc. The advertisement of one product is used to sell the other products as well. And it also can be profitable because it reduces risk of launching new products, because people already know the brand.

What is the learning curve and what is the advantage of it?

The learning curve means that there are experiences and know-how that speed up the proces. This leads to lower costs, higher quality and more effective pricing and marketing.

Should managers promote firm-specific learning or task-specific learning and why?

They should promote firm-specific learning, because this is tied to their current employment and the firm doesn't need to increase salaries. When it is task-specific, employees getting skills while learning may be able to sell their knowledge in the form of higher salaries.

Name 2 reasons why firms diversify?

1. It can be a benefit for the owners by increasing the efficiency of the firm.

2. Diversification could reflect the firma's manager's prefrences if the owners do not take directly decisions

The question on the page originate from the summary of the following study material:

Economics of Strategy, 6th Edition International Student Version | 9781118319185 | David Besanko

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Firm Boundaries - The Horizontal Boundaries of the Firm

8 important questions on Firm Boundaries - The Horizontal Boundaries of the Firm

What is economies of scope and what is the advantage?

Where do scale economies come from? Name 4 that have to do with production and 3 that aren't related with production.

Explain why purchasing can cause economies of scale?

For what 3 possible reasons will a supplier care if sales come from one or many different buyers?

What is umbrella branding and why can it be profitabel (2)?

What is the learning curve and what is the advantage of it?

Should managers promote firm-specific learning or task-specific learning and why?

Name 2 reasons why firms diversify?

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Where do scale economies come from?
Name 4 that have to do with production and 3 that aren't related with production.