3.1.1

Question 1

Name 2 reasons firms may want to grow

Answer 1

• Get monopoly power
• Achieve MES
• Expand into new markets

Question 2

Name 2 reasons firms may want to stay small

Answer 2

• May ruin consumer relations
• Larger firms can be more complacent about operations
• Larger firms tend to be less responsive than smaller firms

Question 3

What’s the divorce of ownership from control?

Answer 3

As the business expands, this is when the owner loses ‘control’ of the business as it gets bigger.

For example, a head chef can’t be in two restaurants at the same time.

Question 4

What’s the principal-agent problem?

Answer 4

When the interests of a company’s owners (the principals) are not aligned with those of its managers (the agents)

Question 5

What’s a public sector organisation?

Answer 5

Organisations which are owned by the government. They provide goods and services for the benefit of the community. They operate with taxpayer’s money.

Question 6

What’s a private sector organisation?

Answer 6

Organisations ran by individuals and companies, rather than a government entity.

Question 7

What’s a not-for-profit organisation?

Answer 7

Organisations which don’t have making profit as their primary aim.

Question 8

What’s a profit organisation?

Answer 8

Organisations which have making profit as their primary aim.