Why do businesses grow?

There are many reasons that help to explain the motivations for businesses to grow

1. Profit motive:

• Businesses grow to achieve higher profits and provide better returns for shareholders
• The stock market valuation of a firm is influenced by expectations of future sales and profit streams so if a company achieves disappointing growth figures, this can be reflected in a fall in the share price. This opens up the risk of a hostile take-over and also makes it more expensive for a quoted company to raise fresh capital by issuing new shares

2.Cost motive:

• Economies of scale the long run increase the productive capacity of the business leading to lower average costs. They help to raise profit margins at a given market price

3.Market power motive:

1. Firms may wish to increase market dominance giving them increased pricing power
2. This market power can be used as a barrier to the entry of new businesses in the long run
3. Larger businesses can build and take advantage of buying power (monopsony power)

4.Risk motive:

1. Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector
2. This is known as achieving economies of scope and is a feature of conglomerates

5.Managerial motives: Behavioural heories of the firm predict that business expansion might be accelerated by senior and middle managers whose objectives differ from major shareholders.

Daily active users on Facebook

The number of installed users of a product is one of the metrics used by businesses to measure how fast they are growing. This is especially important for network businesses such as Facebook. The chart shows the number of active daily users of the social media site.

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