3.1.1 Sizes and Types of Firms Flashcards
(13 cards)
What reasons do firms grow?
Profit Motive
Monopoly Power
Increased Security
Why do firms grow for the profit motive?
By growing, firms decrease cost of production and sell more leading to greater revenue through economies of scale
Why do firms grow for monopoly power?
Larger firms hold greater market shares. This allows them to influence prices and new market entrants
Why do firms grow for increased security?
Larger firms build up more assets to allow more security in times of financial difficulties
Why may growth of firms be constrained?
She of the market
Access to finance
Owner objectives
Regulations
What is the principal agent problem?
The principal agent problem occurs when one group (the agent) makes decisions for another group (principal)
Why in many large firms is there a separation between ownership and control?
Firms are owned by their shareholders who play little part in day to day running
Chief executives who work for the company make day to day decision making
What issues are caused by the separation?
Differing aims between stakeholders
Owners want to maximise returns whereas directors want maximise their own benefits
What is the private sector?
The private sector refers to that part of the economy that is owned and run by individuals and PLCs
What is the public sector?
The public sector refers to the part of the economy which is owned or controlled by either a government. They try to produce a service for citizens
What two organisations can the private sector be split into?
Profit
Non-profit
What are profit organisations?
Private sector organisations that run to make a profit and to maximise financial benefits for shareholders
What are non-profit organisations?
Private sector organisations that support the aim of maximising social welfare
