chapter 20 - firms Flashcards
(31 cards)
What are the three main sectors used to classify firms?
Primary, Secondary, Tertiary.
How can firms be classified by ownership?
Private and Public sectors.
How can firms be classified by size?
Micro, Small, Medium, and Large.
What are common ways to measure the size of a firm?
Revenue, Number of employees, Market share, Capital employed.
Why might a firm choose to remain small?
Flexibility, niche market, personal customer service, lower costs.
What are the benefits of small firms?
Closer customer relationships, quicker decision-making, less bureaucracy.
What is internal growth of a firm?
Growth achieved by increasing output and sales within the company.
What is external growth of a firm?
Growth by merging with or taking over another company.
What is a horizontal merger?
When two firms in the same industry and stage of production merge.
What is a vertical merger?
When two firms at different stages of production in the same industry merge.
What is a conglomerate merger?
When two firms in unrelated industries merge.
What are the advantages of internal growth?
Controlled pace, maintain company culture, less risk.
What are the disadvantages of internal growth?
Slower, limited by internal resources.
What are the advantages of external growth?
Quick market expansion, economies of scale, eliminate competition.
What are the disadvantages of external growth?
Integration issues, higher risk, cultural clashes.
How can mergers affect consumers?
May lead to higher prices, less choice, or better products/services.
What are economies of scale?
Cost advantages gained as a firm increases output.
What are diseconomies of scale?
Rising average costs as a firm becomes too large.
What is technical economies of scale?
Cost savings from better capital and production techniques.
What is financial economies of scale?
Larger firms get better access to loans and lower interest rates.
What is managerial diseconomies of scale?
Inefficiency due to over-complex management structures.
What is coordination diseconomies of scale?
Increased costs from communication and organization problems.
What does a typical long-run average cost (LRAC) curve look like?
U-shaped: falling then rising as output increases.
What is a capital-intensive industry?
An industry relying more on machines and equipment.
