Practice Assessment Answers

Option Economic Term Definition One  Horizontal Integration When a business expands by either a merger or takeover with another business in the same industry in the same stage of production Two  Diversification  When a business expands by either a merger or takeover with another business in a different industry

Achieved A positive consequence of horizontal integration when two chocolate factories combine it reduces competition. A negative consequence of horizontal integration would be that it increases risk as they are in the same industry

Merit A positive consequence of horizontal integration when two chocolate factories combine it reduces competition This means that the business could increase its prices without loosing too many customers as there is less choice for customers. This leads to an increase in profits. A negative consequence of horizontal integration would be that it increases risk as they are in the same industry. This means that if there is a downturn in the chocolate industry it would affect profits in both businesses.

Merit A positive consequence of Cadbury’s factory purchasing a gardening business is that it is a way of spreading risk. This means that if there is a downturn in the chocolate market, the business owners can still get income from the gardening business. A negative consequence Cadbury’s factory purchasing a gardening business is that the business owners and manager of Cadbuy’s may not be familiar with the gardening market. This may lead to a decrease in productivity and therefore profits may fall.

Excellence A positive consequence of horizontal integration when two chocolate factories combine it reduces competition This means that the business could increase its prices without loosing too many customers as there is less choice for customers. This leads to an increase in profits. The owner could also benefit from increased market share and due to increased production they may benefit from economies of scale. This is where average costs of the business start to fall. A negative consequence of horizontal integration would be that it increases risk as they are in the same industry. This means that if there is a downturn in the chocolate industry it would affect profits in both businesses. This means the owner of the business must be aware of changes in the market and be proactive if there are changes.

A positive consequence of Cadbury’s factory purchasing a gardening business is that it is a way of spreading risk. This means that if there is a downturn in the chocolate market, the business owners can still get income from the gardening business. A negative consequence Cadbury’s factory purchasing a gardening business is that the business owners and manager of Cadbury’s may not be familiar with the gardening market. This may decrease efficiency and productivity may fall as they will have to retrain workers in areas they are unskilled in. Retraining workers will increase costs for the business and this may lead to a decrease in profits.