Following several years of rising coordination difficulties and declining profit margins, the board of directors at Vortex Global voted to demerge its high-growth digital entertainment division from its capital-intensive heavy manufacturing division.
Which of the following best explains why this demerger is expected to improve the long-run performance of both newly independent companies?
It allows both companies to benefit from increased internal economies of scale by consolidating their marketing and financial departments.
It eliminates managerial diseconomies of scale, allowing each specialist management team to focus on their respective core activities.
It enables both firms to achieve vertical integration, securing control over their respective upstream supply chains.
It increases the barriers to entry in both markets, preventing new competitors from challenging their combined market share.
3 exam-style questions on Edexcel A A Level Economics 3.1.3 Demergers. Each one has a worked solution and a mark scheme showing where the marks go.