Write your name here Marks: Unit Test (Types and sizes of businesses Revenue, costs and profits) Duration:1.5 hours Instructions • Use black ink or ball-point pen. • If pencil is used for diagrams/sketches/graphs it must be dark (HB or B). Coloured pencils and highlighter pens must not be used. • Fill in the boxes at the top of this page with your name. • Answer all questions and ensure that your answers to parts of questions are clearly labelled. • Answer the questions in the spaces provided – there may be more space than you need. Information • The total mark for this paper is xxx. • The marks for each question are shown in the question – use this as a guide as to how much time to spend on each question. Advice • Read each question carefully before you start to answer it. • Try to answer every question. • Check your answers if you have time at the end. SECTION A Define the terms (10*2’) 1. State-owned enterprise (SOE) 2. Backward vertical integration 3. Demerger 4. Niche market 5. Organic growth 6. Marginal revenue 7. Economic cost 8. Law of diminishing return 9. Return to scale 10. Short run SECTION B Essay practices (20*2’) 1. In June 2016 New Zealand Media and Entertainment (NZME) completed its demerger from Australia’s APN News & Media. Discuss possible reasons for demergers. Demerger means the splitting of a company into two or more separate parts, creating two or more companies; it sometimes refers to the sale of a small part of one business to another. This phenomenon occurs because of the lack of synergies or the risk of reducing diseconomies of scale, speci cally because one part of the company has no impact on the more e cient and pro table operation of the other part of the company. An example is that two or more activities or companies combined can create results that are greater than the sum of their individual parts. In the absence of synergies, there may even be diseconomies of scale as senior managers are forced to allocate their time to two or more operations that have little to do with each other. Also the lack of synergy may be due to cultural di erences. Demerger may also arise because of price issues: the price of the company being split may be higher than the price of a single, larger company Although the rest of the company is performing well, the relatively poor performance of one part of the company may drag down the share price of the whole company. A realistic example is that management can achieve higher pro ts and growth by focusing on understanding and developing a limited range of markets. As a result, companies divest (i.e., sell) parts of their business that are not compatible with their core business． However, sometimes a company may sell a part too cheaply and turn out to be very successful． Or, divestment indicates that a company has limited management resources． The part being sold will never be successful within that company because management does not have the time or expertise to make it thrive. In addition, raising capital through the sale of assets can be one of the reasons that it raises money for shareholders and returns it to them . However, this transaction may be underestimated to meet the regulatory requirements of the competition authorities. 2. Coca-Cola, Nike and Volkswagen are examples of transnational companies (TNCs). Discuss the reasons why companies become TNCs.
