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Economics IGCSEPDF 69
118 pagesrevision 46932
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■ Forward Vertical: A
firm merges with its
distributor/retailer
(e.g., a car
manufacturer buys a
car showroom chain).
Conglomerate Integration:
Firms in unrelated
industries merge (e.g., a car
manufacturer buys a food
processing company).
Reasons for Firm Growth
● Achieve Economies of Scale: To
reduce long-run average costs (see
3.6).
● Increased Market Share/Power: To
gain greater control over the market,
which can enable higher prices or
deter new competitors.
● Increase Profits: Growth often
leads to higher sales and lower costs,
resulting in greater profits.
● Diversification (Conglomerate):
Spreading risk across different
markets so if one sector performs
poorly, the others might still do well.
3.6 Firms and Production
This section covers the concepts of production, productivity, and economies and diseconomies
of scale.
Definitions
Production: The process of combining the
four factors of production (Land, Labour,
Capital, Enterprise) to create output (goods
and services).
Productivity: A measure of the efficiency of
production, typically measured as output per
unit of input (e.g., output per worker hour).
Capital-Intensive: Production methods that
rely heavily on capital (machinery and