3.1
SIZES AND TYPES OF FIRMS
SIZES OF FIRMS
REASONS FIRMS GROW
Economies of scale
as firms increase in size they become more efficient
larger production quantities leads to lower costs per unit
leads to lower long run costs
selling more goods
increased revenue
more profits
Monopoly power
a larger firm holds a greater share of their market
allows them to influence prices and restrict other firms from entering the
market
more profits in the long run
Monopoly power often means firms have monopsony power
the firm has significant control over the market
can use this to decrease their costs of production by driving down cost
of raw materials
Greater security
the firm will be able to build up its assets and cash
this can be used in financial struggles
3.1 1
, more likely to sell a larger range of goods or in several local/national
markets
less affected by changes to individual products or places
Owners objectives
the objective may require the firm to be large
e.g Steve Jobs objective was to change the world with technology
WHY SOME FIRMS REMAIN SMALL
Some firms remain small due to constraints on their growth
the size of the market
access to finance
may not have the money to expand
hard to raise money for investments
banks may be unwilling to loan money to small firms
risk they will be unable to pay it back
owner’s regulation and objectives
the owner may just want to profit - satisfice
just wants a quiet life, not demanding
does not want to grow
niche markets
may have a small amount of consumers
the firm may only operate successfully when being small
regulations may limit growth
regulations to stop firms from growing too big
regulations to prevent exploitation of consumers
e.g Three tried to buy O2, but was prevented due to the idea that it
would have too much market power and be able to exploit its buyers
3.1 2
SIZES AND TYPES OF FIRMS
SIZES OF FIRMS
REASONS FIRMS GROW
Economies of scale
as firms increase in size they become more efficient
larger production quantities leads to lower costs per unit
leads to lower long run costs
selling more goods
increased revenue
more profits
Monopoly power
a larger firm holds a greater share of their market
allows them to influence prices and restrict other firms from entering the
market
more profits in the long run
Monopoly power often means firms have monopsony power
the firm has significant control over the market
can use this to decrease their costs of production by driving down cost
of raw materials
Greater security
the firm will be able to build up its assets and cash
this can be used in financial struggles
3.1 1
, more likely to sell a larger range of goods or in several local/national
markets
less affected by changes to individual products or places
Owners objectives
the objective may require the firm to be large
e.g Steve Jobs objective was to change the world with technology
WHY SOME FIRMS REMAIN SMALL
Some firms remain small due to constraints on their growth
the size of the market
access to finance
may not have the money to expand
hard to raise money for investments
banks may be unwilling to loan money to small firms
risk they will be unable to pay it back
owner’s regulation and objectives
the owner may just want to profit - satisfice
just wants a quiet life, not demanding
does not want to grow
niche markets
may have a small amount of consumers
the firm may only operate successfully when being small
regulations may limit growth
regulations to stop firms from growing too big
regulations to prevent exploitation of consumers
e.g Three tried to buy O2, but was prevented due to the idea that it
would have too much market power and be able to exploit its buyers
3.1 2
