1.1 Sizes & types of Firms

Question 1

Types of firms?

Answer 1

• Public sector organisations
• Private sector organisations
• Not for profits

Question 2

How do small firms survive?

Answer 2

1) Different objectives (e.g. satisficing)
2) Acting as suppliers
3) External economies of scale

Question 3

Key reasons to stay small?

Answer 3

1) Avoid diseconomies of scale
2) better customer service
3) More flexibility

Question 4

What is the Principal-Agent Problem?

Answer 4

Difference in objectives between owners and hired managers

Question 5

Overcoming the Principal-Agent Problem?

Answer 5

1) Employee share ownership schemes (e.g. John Lewis)
2) Long-term employment contracts