AQA GCSE · Question 03.6 · Business in the real world
Using Table 2, explain one benefit to STC of its growth.
How to approach this question
1. State a benefit of business growth (e.g., economies of scale, increased profit, market power).\n2. Link this benefit to the data in Table 2. Look at how the costs have changed as the sales volume has increased.
Full Answer
One of the main advantages of business growth is achieving **economies of scale**. This is where the average cost per unit of production falls as a business increases its output. This happens for several reasons:\n- **Purchasing economies:** Buying raw materials in bulk leads to discounts from suppliers.\n- **Technical economies:** Larger firms can afford more efficient machinery and production processes.\n- **Financial economies:** Banks are more willing to lend to larger, more established firms at lower interest rates.\nTable 2 clearly shows this effect. As STC's output grew from 50,000 to 450,000, its average unit cost fell from £40.99 to £29.99. This cost advantage can lead to higher profit margins or allow the business to lower its selling prices to become more competitive.
Common mistakes
✗ Not using the data from Table 2. The question requires it.\n✗ Confusing economies of scale with general profit increase. While lower costs lead to higher profit, the specific benefit shown in the table is the reduction in average cost.
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