Expanding a business: Practice Questions

Which of the following is an example of a business using organic growth to expand its operations?

A manufacturing firm expands its production capacity. Its total costs increase from \( \$20,000 \) to \( \$45,000 \), while its total output increases from \( 1,000 \) units to \( 3,000 \) units.
What is the average unit cost after the expansion?

A multinational corporation undergoes rapid external growth by taking over a competitor. Shortly after, it experiences a rise in average unit costs.
Which of the following best explains why this diseconomy of scale has occurred?

A large supermarket chain is able to negotiate significant discounts from its suppliers because it buys inventory in massive quantities. This cost-saving benefit is known as:

A business increases its monthly output from \( 1,000 \) units to \( 2,500 \) units. Over the same period, its total costs rise from \( \$5,000 \) to \( \$10,000 \). Calculate the new average unit cost and explain if the business has achieved economies of scale.

A manufacturing business produces 12,000 units of a product. The total costs for this production level are \( \$48,000 \). The business is planning to expand its operations through organic growth by opening a new production line.
a) Calculate the current average unit cost for the business.
b) Explain one benefit to the business of expanding through organic growth rather than through a takeover.
c) Identify one reason why expansion might lead to diseconomies of scale.