Growth and survival of firms
7.7What the syllabus asks of you
- reasons for different sizes of firms
- internal growth of firms: organic growth and diversification
- external growth of firms – integration (mergers and takeovers): methods of integration: horizontal; vertical (forwards and backwards); conglomerate
- external growth of firms – integration (mergers and takeovers): reasons for integration
- external growth of firms – integration (mergers and takeovers): consequences of integration
- cartels: conditions for an effective cartel
- cartels: consequences of a cartel
- principal–agent problem arising from differing objectives of shareholders/owners and managers
Drill this topic
Every question on Growth and survival of firms, untimed, marked as you go.
Make a worksheet
Choose the years and how many questions, then print it with the answers on separate pages.
53 questions
1May / June 2026 · Paper 31 · Q3Show mark scheme →
Aa forward vertical merger
Ba forward vertical takeover
Ca horizontal merger
Da horizontal takeover
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2May / June 2026 · Paper 32 · Q2Show mark scheme →
Ato diversify the product range offered to consumers
Bto decrease average fixed costs
Cto increase market share
Dto provide better customer service
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3May / June 2026 · Paper 33 · Q3Show mark scheme →
Aa forward vertical merger
Ba forward vertical takeover
Ca horizontal merger
Da horizontal takeover
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4May / June 2026 · Paper 34 · Q4Show mark scheme →
Athere will be an increase in competition
Bthere will be an increase in the price elasticity of supply
Cthere will be greater technical economies of scale
Dthere will be less government regulation needed
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5Oct / Nov 2025 · Paper 31 · Q1Show mark scheme →
Aa manager of a business makes decisions on behalf of the owner
Bmusic festival tickets are purchased by a person who intends to sell them at a large profit
Cthe government is the only buyer of a pharmaceutical product
Dthere is only one firm that manufactures the product
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6Oct / Nov 2025 · Paper 34 · Q3Show mark scheme →
AA firm manufacturing computers merges with a firm that manufactures furniture.
BA firm manufacturing computers merges with a firm that manufactures silicon chips for computers.
CA firm manufacturing computers merges with a retail outlet that sells computers.
DA firm manufacturing computers merges with another firm that also manufactures computers.
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7May / June 2025 · Paper 31 · Q7Show mark scheme →
Asmall firms: are more common in manufacturing than in services; large firms: face high barriers to exit
Bsmall firms: are more numerous than large firms; large firms: do not experience diseconomies of scale
Csmall firms: can do well when each item produced is different; large firms: may arise from internal growth or mergers
Dsmall firms: cannot have any monopoly power; large firms: cannot earn supernormal profits
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8May / June 2025 · Paper 32 · Q7Show mark scheme →
AIt would enable greater bargaining power when buying raw materials.
BIt would enable technical economies of scale.
CIt would produce savings in management and administration costs.
DIt would reduce the dependence of the firms on the suppliers of raw materials.
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9May / June 2025 · Paper 33 · Q7Show mark scheme →
Asmall firms: are more common in manufacturing than in services; large firms: face high barriers to exit
Bsmall firms: are more numerous than large firms; large firms: do not experience diseconomies of scale
Csmall firms: can do well when each item produced is different; large firms: may arise from internal growth or mergers
Dsmall firms: cannot have any monopoly power; large firms: cannot earn supernormal profits
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10Feb / March 2025 · Paper 32 · Q3Show mark scheme →
Aa high concentration ratio
Ba limit-pricing policy
Chigh fixed costs
Dlow barriers to entry
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11Oct / Nov 2024 · Paper 31 · Q5Show mark scheme →
AAC1, AR3
BAC2, AR1
CAC2, AR3
DAC3, AR2
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12Oct / Nov 2024 · Paper 31 · Q9Show mark scheme →
Acontestable markets
Bdiseconomies of scale
Cprincipal-agent problem
Dprisoner's dilemma
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13Oct / Nov 2024 · Paper 31 · Q10Show mark scheme →
Adifferent industry, different stage of production
Bdifferent industry, same stage of production
Csame industry, different stage of production
Dsame industry, same stage of production
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14Oct / Nov 2024 · Paper 32 · Q10Show mark scheme →
Ahorizontal
Blateral
Cvertical backwards
Dvertical forwards
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15Oct / Nov 2024 · Paper 33 · Q9Show mark scheme →
Aa cartel
Ba conglomerate merger
Ceconomies of scale
Dhorizontal integration
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16May / June 2024 · Paper 31 · Q9Show mark scheme →
Aa partnership
Beconomies of scale
Chorizontal integration
Dincreased profits
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17May / June 2024 · Paper 32 · Q8Show mark scheme →
Aincreased preference on the part of consumers for distinctive non-standardised products
Breductions in the rate of interest charged by commercial banks
Cthe absence of effective barriers to the entry of potential competitors
Dthe existence of decreasing returns to scale
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18May / June 2024 · Paper 32 · Q10Show mark scheme →
Aa bakery buying a wheat farm
Ba car manufacturer buying a car showroom
Ca vineyard buying an apple orchard
Dtwo rival supermarkets joining together
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19May / June 2024 · Paper 33 · Q9Show mark scheme →
Aa partnership
Beconomies of scale
Chorizontal integration
Dincreased profits
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20Feb / March 2024 · Paper 32 · Q5Show mark scheme →
Afall | more elastic
Bfall | more inelastic
Crise | more elastic
Drise | more inelastic
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21Feb / March 2024 · Paper 32 · Q8Show mark scheme →
Aincreasing monthly salaries of waiters in a restaurant to decrease their dependence on tips from customers
Blinking workers’ pay with the profits of the firm to motivate them to raise the profitability of the firm
Cmaking full fee payment in advance to a lawyer to motivate him to prepare a legal case well
Doffering permanent contracts to give workers job security
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22Feb / March 2024 · Paper 32 · Q9Show mark scheme →
AIf R takes over S, this is an example of forwards vertical integration.
BIf S takes over V, this is an example of backwards vertical integration.
CIf T takes over S, this is an example of diversification.
DIf V takes over S, this is an example of horizontal integration.
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23Oct / Nov 2023 · Paper 33 · Q3Show mark scheme →
Aensuring the actions of agents are known by the managers
Blinking the rewards of managers with the profitability of the firm
Cremoving from managers the opportunity to hold shares
Dpreparing contracts that compel agents to work in the interest of the principal
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24Oct / Nov 2023 · Paper 33 · Q6Show mark scheme →
Ahorizontal integration
Borganic growth
Cvertical backward integration
Dvertical forward integration
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25May / June 2023 · Paper 31 · Q8Show mark scheme →
Adecrease; decrease
Bdecrease; increase
Cincrease; decrease
Dincrease; increase
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26May / June 2023 · Paper 31 · Q11Show mark scheme →
Adecreased moral hazard
Bthe principal agent problem
Cgreater productive efficiency
Dincreased profit maximisation
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27May / June 2023 · Paper 32 · Q5Show mark scheme →
Adecrease; decrease
Bdecrease; increase
Cincrease; decrease
Dincrease; increase
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28May / June 2023 · Paper 33 · Q8Show mark scheme →
Adecrease; decrease
Bdecrease; increase
Cincrease; decrease
Dincrease; increase
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29May / June 2023 · Paper 33 · Q11Show mark scheme →
Adecreased moral hazard
Bthe principal agent problem
Cgreater productive efficiency
Dincreased profit maximisation
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30Feb / March 2023 · Paper 32 · Q8Show mark scheme →
AThe tenants forget to switch off a tap when filling a bath and water overflows, damaging the floor.
BThe tenants have a party and their guests cause damage to the interior of the house.
CThe tenants leave the lights and the TV on when they go out for an evening meal.
DThe tenants park their car in the garden, damaging the grass and the surrounding hedge.
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31Oct / Nov 2022 · Paper 31 · Q12Show mark scheme →
Aan increase in competition from closely related industries
Ban increase in the number of firms in the industry
Can increase in the range of products made by cartel members
Dan increase in the stability of the market for its products
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32Oct / Nov 2022 · Paper 32 · Q11Show mark scheme →
Ahorizontal / horizontal
Bhorizontal / vertical
Cvertical / horizontal
Dvertical / vertical
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33Oct / Nov 2022 · Paper 33 · Q8Show mark scheme →
Ahigh concentration ratio that reduces competition
Bhigh start-up costs that occur in a contestable market
Cdecreasing average cost as a large firm expands
Da requirement for personalised equipment
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34May / June 2022 · Paper 31 · Q8Show mark scheme →
ADemand for the product tends to change often and rapidly.
BIndividual entrepreneurs wish to keep a tight personal control over their own firm.
CThe entrepreneurs who establish the firms tend to be ambitious risk-takers.
DThe market in which they operate is very specialised in nature, often selling unique products.
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35May / June 2022 · Paper 31 · Q12Show mark scheme →
Aincreasing government regulation of conditions in the workplace
Bmore risk-averse (cautious) lending policies by banks
Cstronger government laws against the growth of monopoly
Dtougher penalties in the case of personal bankruptcy
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36May / June 2022 · Paper 32 · Q9Show mark scheme →
Aan increase in the cost of borrowing from commercial banks
Ban increase in personal services as a share of GDP
Can increase in the rate of change of information technology
Dan increase in the ratio of capital to labour employed in an economy
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37May / June 2022 · Paper 32 · Q10Show mark scheme →
Aa large number of firms in the industry
Bhaving a differentiated product
Clow barriers of entry to the industry
Dstrictly enforced production quotas
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38May / June 2022 · Paper 33 · Q8Show mark scheme →
ADemand for the product tends to change often and rapidly.
BIndividual entrepreneurs wish to keep a tight personal control over their own firm.
CThe entrepreneurs who establish the firms tend to be ambitious risk-takers.
DThe market in which they operate is very specialised in nature, often selling unique products.
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39May / June 2022 · Paper 33 · Q12Show mark scheme →
Aincreasing government regulation of conditions in the workplace
Bmore risk-averse (cautious) lending policies by banks
Cstronger government laws against the growth of monopoly
Dtougher penalties in the case of personal bankruptcy
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40Feb / March 2022 · Paper 32 · Q11Show mark scheme →
AThey each offer a much wider range of products.
BThey have a higher minimum efficient scale.
CThey pay much higher wages to their staff.
DThey provide a more personal level of consumer service.
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41Feb / March 2022 · Paper 32 · Q12Show mark scheme →
ADirectors prefer company growth to greater shareholder dividends.
BManagers ignore workers' concerns about safety in the workplace.
CShareholders determine the price of products.
DWorkers go on strike against managers' reorganisation plans.
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42Oct / Nov 2021 · Paper 31 · Q6Show mark scheme →
Ahorizontal integration
Bthe formation of a cartel
Cvertical integration backwards
Dvertical integration forwards
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43Oct / Nov 2021 · Paper 31 · Q9Show mark scheme →
Aachieving a near monopoly status to control outputs and prices
Blocating the firm's home base in a country with a low level of corporation tax
Coperating as a member of a cartel with production quotas
Downing subsidiary firms in different countries to achieve economies of scale
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44Oct / Nov 2021 · Paper 32 · Q10Show mark scheme →
AThe minimum efficient scale is high.
BThe potential for x-inefficiency is high.
CThere are significant economies of scale.
DThere is limited access to financial capital.
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45Oct / Nov 2021 · Paper 32 · Q11Show mark scheme →
Athe disincentive effect for entrepreneurs of high government tax rates
Bthe existence of a trade union to put forward workers’ views to managers
Cthe lack of consumer knowledge of the quality of firms’ products
Dthe separation of the owners of a firm from the firm’s managers
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46Oct / Nov 2021 · Paper 33 · Q9Show mark scheme →
Aan increase in the cost per minute of television advertising
Ba switch in consumer preferences to cheaper mass-produced bread
Cdiseconomies of scale in the process of bread production
Dincreased congestion on road networks
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47May / June 2021 · Paper 31 · Q7Show mark scheme →
Ato achieve cost economies of scale
Bto agree common prices with rivals
Cto ensure greater ability to spread investment risks
Dto increase productivity of labour
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48May / June 2021 · Paper 31 · Q8Show mark scheme →
Acontestability of the market; expensive new technology
Bcustomers valuing personal service; new government regulations on its business
Clow barriers to entering its industry; managerial diseconomies of scale
Dselling a homogeneous product; new firms entering the market
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49May / June 2021 · Paper 32 · Q7Show mark scheme →
Aa cartel
Bdiversification
Clateral integration
Dvertical integration
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50May / June 2021 · Paper 33 · Q7Show mark scheme →
Ato achieve cost economies of scale
Bto agree common prices with rivals
Cto ensure greater ability to spread investment risks
Dto increase productivity of labour
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51May / June 2021 · Paper 33 · Q8Show mark scheme →
Ahelp: contestability of the market; threat: expensive new technology
Bhelp: customers valuing personal service; threat: new government regulations on its business
Chelp: low barriers to entering its industry; threat: managerial diseconomies of scale
Dhelp: selling a homogeneous product; threat: new firms entering the market
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52Feb / March 2021 · Paper 32 · Q7Show mark scheme →
AThey are a form of trade union restrictive practice.
BThey are a type of industrial merger.
CThey are often subject to government investigation.
DThey establish a vertical link between firms.
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53Feb / March 2021 · Paper 32 · Q10Show mark scheme →
Aa fall in consumer surplus
Bcost of funding the merger
Ceconomies of scale
Dmarket dominance
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