3.5 Firms Flashcards
(20 cards)
What are 3 advantages of a small firm?
- Independence
- Control
- Better Communication
What are 3 disadvantages of a small firm?
- Higher costs (no eos)
- Lack of finance
- Vulnerable to changes in economic conditions
What are 2 reasons why small firms still exist?
- Size of the market
- Govt. help small firms
Define internal growth
expanding the scale of production of the firm’s existing operations
Define external growth
two or more firms joining together to form a larger business
Define horizontal integration
integration of firms engaged in the production of the same type of good at the same level of production.
What are 2 advantages of horizontal integration
- Exploit economies of scale
- Reduces Competition
What are 2 disadvantages of horizontal integration
- Reduced Flexibility
- Risk of diseconomies of scale
Define vertical integration
integration of firms engaged in the production of the same type of good but at different levels of production
What are 2 advantages of vertical integration
- Assures supplies/outlets
-prevent the other firm from supplying materials or selling products to competitors
What are 2 disadvantages of vertical integration
- Risk of diseconomies of scale
- Reduced flexibility
Define conglomerate merging
this occurs when firms producing different type of products integrate
What are 2 advantages of conglomerate merging?
- Diversify Risks
-Transfer of new ideas
What are 2 disadvantages of conglomerate merging?
-Lose focus
- Culture clash
What are 2 economies of scale?
Purchasing and Marketing
Define purchasing economies of scale
large firms can be buy raw materials and components in bulk because of their large scale of production
Define marketing economies of scale
large firms can afford their own vehicles to distribute their products, which is much cheaper than hiring other firms to distribute them
What are 2 diseconomies of scale?
Management and Too Much output
Define management diseconomies of scale
communication difficult and decision-making very slow due to many workers
Define too much output diseconomies of scale
may require a large supply of raw materials, power etc. which can lead to shortage and halt production, increasing costs
