Firms

Question 1

Interdependence

Answer 1

Three seconds depend on each other, cannot operate independently to produce goods and services

Question 2

Private sevtor

Answer 2

Economic activity of private individuals and firms

Question 3

Public sector

Answer 3

Economic activity directly involving gov.

Question 4

Relative size of firms

Answer 4

• no. Of employees
• market share
• market capitalization of firm
• sales revenue of firm

Question 5

Adv of small firms

Answer 5

• few legal formalities
• flexibility in decision making
• easier to control
• receive all profit as only owner

Question 6

Disadv of small firms

Answer 6

• largest risk of business failure
• limited start up capital
• lack of continuity

Question 7

Merger

Answer 7

2 or more firms join tgt to form one firm

Question 8

Horizontal merger

Answer 8

Same industry same sector

Question 9

Adv of horizontal merger

Answer 9

• higher market share
• gain skilled emp. From each other

Question 10

Disadv of horizontal merger

Answer 10

• Duplication of resources, emp. Lose jobs
• face inc. costs from diseconomies of scale

Question 11

Vertical merger

Answer 11

Same industry diff sector

Question 12

Backward vertical merger

Answer 12

sec. Sector to primary sector
- tertiary sector to primary/sec.

Question 13

Adv of backward vertical merger

Answer 13

• price of raw material fall as no need to buy from external firm

Question 14

Forward vertical merger

Answer 14

• primary sector to sec./tertiary
• sec. To tertiary

Question 15

Conglomerate merger

Answer 15

Diff industry diff sector

Question 16

Takeover

Answer 16

1 from taken over by another

Question 17

Franchise

Answer 17

Firm buys license from another firm to trade using another firms brand

Question 18

Economies of scale

Answer 18

Cost saving benefits of large companies

Question 19

Internal economies of scale

Answer 19

Cost savings that arise from within bus.

Question 20

Internal economies of scale example

Answer 20

• Bulk buying
• financial economies of scale (borrow money from firms is easier, banks think less risk)

Question 21

External economies of scale

Answer 21

Arise due to location of bus.

Question 22

External economies of scale example

Answer 22

• proximity of related firms (transportation costs reduced when suppliers nearby)
• availability of skilled labor

Question 23

Diseconomies of scale

Answer 23

Average cost of production inc. as firm size inc.

Question 24

Reasons for diseconomies of scale

Answer 24

• Barrier to effective communication
• demerge (previously merged firms break up)
• workers don’t feel part of large firm, reduced productivity