Business Growth (THEME 3) Flashcards
Why do firms grow?
-In order to experience economies of scale and therefore have higher levels of profits made, so are more productive.
-Reduce the level of competition in the market and therefore have a higher market share to be able to compete and drive out competition meaning that it’s able to dictate prices.
-To diversify their product range and so attract more costumers in order to have costumer loyalty.
Why do firms remain small?
-In order to be able to stay in the market and be able to survive.
-to not experience diseconomies of scale and so not have more debt.
-they might have a different objective like sales maximisation.
What is the principle agent problem?
When there is a conflict of objectives between managers and CEO of a business. So might have different objectives.
