Question 7
[Maximum number: 1]
Why might a firm adopt a policy of diversification?
A
to achieve cost economies of scale
B
to agree common prices with rivals
C
to ensure greater ability to spread investment risks
D
to increase productivity of labour
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.
How this is tested
- 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