CAIE A-Level Economics 7.7.2 Internal Growth

Practise distinguishing organic expansion from mergers and identifying diversification when a firm reinvests, develops products or enters related markets using its own resources.

Exam points

identify internal growth when retained resources expand the firm's own output or capacity
identify diversification when the firm enters new product markets to spread investment risk

[Maximum number: 1]

Why might a firm adopt a policy of diversification?

to achieve cost economies of scale

to agree common prices with rivals

to ensure greater ability to spread investment risks

to increase productivity of labour

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7.7.2—Internal growth question 1