Benefits of a growing business
As a business grows it gains two major advantages over its smaller rivals. Large firms:
- have more influence over market price and are big enough to be A large business which has the power to influence the market price of products.
- often enjoyThe cost advantages of operating on a larger scale, eg buying more cheaply in bulk and reducing unit costs.
The cost advantages of operating on a larger scale, eg buying more cheaply in bulk and reducing unit costs. means that a business has lower The average cost of making one product. because of its large size. They can buy The basic materials that are used to make a product cheaply in bulk and also spread the high cost of marketing campaigns and A fixed cost such as heating or lighting incurred by a business. across larger sales.
For example, if a large firm can produce a given type of sunglasses for 拢20 while it costs its smaller rival an average of 拢30, then the larger firm has a 拢10 per unit cost advantage. Larger firms can:
- charge lower prices
- enjoy a higher The amount by which sales is greater than costs.
The cost advantages of operating on a larger scale, eg buying more cheaply in bulk and reducing unit costs. are a major source of competitive advantage for large firms.