Elaboration and example large firms that earn

This preview shows page 29 - 35 out of 62 pages.

thus can have greater market power. [Elaboration and example] Large firms that earn supernormal profits can also use these profits to invest in research & development to do product innovation thus differentiating their product. This makes other companies goods poorer substitutes, thus the PED of their good would be more inelastic. [Link] This makes the demand for their good more stable in the face of competitor’s pricing strategies and the revenue more consistent.
Image of page 29

Subscribe to view the full document.

(a) Explain the benefits that a firm enjoys when it grows in size. [10]
Image of page 30
Essay Q2: As globalisation continues, the tearing down of trade barriers has provided some companies opportunities for growth while it has been harmful for others. Accustomed to dominant positions in protected markets, the influx of foreign competition often poses a threat to the survival of local companies. (a) Explain the benefits that a firm enjoys when it grows in size. [10] (b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] 1) Competition ↓AR ↓profits 2) Competing demand for resources ↑AC ↓profits 3) Threat to survival may shut down Strategies to raise profits (↑TR, ↓TC) and survive the competition by foreign firms
Image of page 31

Subscribe to view the full document.

(b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] Objective of firm: maximise profits Expand to ↑revenue (e.g. mergers, enter foreign markets, product differentiation) ↑profits Challenges posed by globalisation Greater competition for consumers ↓AR, MR ↓revenue ↓profits Greater competition for resources ↑cost ↓profits Strategies vv impt! MUST SAY FIRST! ↓cost (e.g. process innovation, outsourcing or import cheaper factor inputs) ↑profits
Image of page 32
(b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] Suggested Intro: Clarify and expand on definition of globalization Clarify objective of firm: profit maximisation / loss minimisation Identify main challenges of globalization: greater competition for consumers / greater competition for limited FOP Direction statement: There are many strategies a firm can undertake to cope with the challenges of globalization.
Image of page 33

Subscribe to view the full document.

(b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] Suggested Body 1: Globalisation poses a challenge to firms in the form of greater competition for consumers. [Point 1a] Greater competition for consumers due to globalisation can reduce the demand (AR and MR) of the firm, lowering profits. [Elaboration and example] Removal of trade barriers such as tariffs and quotas on foreign imports of goods and services allows for them to become more price competitive, increasing competition between imported goods and domestic goods. This will cause a fall in the demand facing the domestic firm as more foreign companies enter the domestic market. (Diagram of falling AR and MR) Assuming the costs of the firm remain unchanged, the fall in revenue caused by the decrease in demand will lead to lower profits earned.
Image of page 34
Image of page 35
  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes