3.1.1 - Sizes and Types of Firms

Question 1

What are the three reasons firms grow?

Answer 1

• to make more money
• for greater security
• for more monopoly power.

Question 2

How does a firm growing ensure them more money?

Answer 2

by growing, firms will be able to increase their economies of scale, lowering their costs of production. This means they can sell more goods, therefore making more revenue. They can make more profits which motivates firms.

Question 3

How does a firm growing ensure greater monopoly power?

Answer 3

by growing, the have a greater share of the market. This will give them the ability to control prices and create barriers of entry for new firms, boosting their profits in the long-run. If a firm has monopoly power they’ll like have monopsony power, meaning they can drive down the prices of raw materials reducing their costs of production.

Question 4

How does a firm growing ensure greater security?

Answer 4

by growing, firms will be able to build up more assets and cash, and use them during financial difficulties. Larger firms also typically sell a larger range of products than a local market, so they are less affected to changes to individual products.

Question 5

What are the five reasons firms remain small?

Answer 5

• size of market
• access to finance
• owner objectives
• regulation
• wanting to stay small

Question 6

What is the private sector?

Answer 6

Part of the economy that is owned by individuals or groups of individuals.

Question 7

What is the public sector?

Answer 7

The part of the economy owned by central or local government. The purpose of these organisations are to provide a service to UK citizens, and profit making is not the main incentive. They may even make a loss which is funded by the government.

Question 8

What sector are profit/ not-for-profit organisation?

Answer 8

Private sector.

Question 9

How do profit organisations work?

Answer 9

They aim to make a profit and maximise financial benefits for their shareholders. They make not be profit maximising but their long-term goal is to make money.

Question 10

How do not-for-profit organisations work?

Answer 10

Any profit made by these organisation are used to maximise social welfare and helping individuals and groups (e.g. charities).