3.1.1 Flashcards
Size and types of firms
Economies of Scale
cost advantages that a firm can achieve as it increases its level of output
Market Demand
Firms may remain small if the market demand for their product or service is limited
Access to Capital
Availability of funds plays a crucial role in growth
Managerial Capacity
Some entrepreneurs may lack the skills or resources required to manage a large organization effectively
Government Regulations
Regulatory barriers can hinder or promote growth in specific industries
Principal-Agent Problem
when the interests of the owner (principal) and the manager (agent) of a firm do not align, leading to conflicts
Misaligned Incentives
Managers may prioritize personal gain over maximizing shareholder wealth
Risk Aversion
Managers may avoid taking risks that could benefit the firm but endanger their job security
Solutions
performance-based pay, monitoring, and corporate governance- aligns interests
Public sector organizations
owned and controlled by the government
private sector organizations
owned by private individuals or entities
Profit Motive
Private sector firms aim to generate profits, while public sector organizations often provide services without a profit motive
Funding Source
Public sector organizations are funded through taxes and government budgets, while private sector organizations rely on investments, loans, and revenue.
Profit Orientation
Profit organizations aim to generate income that exceeds their expenses, while not-for-profit organizations prioritize their mission over profit
Revenue Sources
Profit organizations primarily rely on sales and investments for revenue, while not-for-profit organizations may depend on donations and grants
