3.1.1 Reasons why some firms tend to remain small and why others grow:

Question 1

Reasons why some firms tend to remain small and why others grow

Economies of Scale:

Answer 1

explanation: Economies of scale are cost advantages that a firm can achieve as it increases its level of output

example: A large manufacturing company can produce more units of a product at a lower cost per unit compared to a small, local producer. This cost advantage can allow large firms to expand and grow

Question 2

Access to Capital:

Answer 2

Point: Availability of funds plays a crucial role in growth.

Example: Small startups may struggle to secure investment, while established companies with a proven track record can easily raise capital to expand.

Question 2

Reasons why some firms tend to remain small and why others grow:

Market Demand:

Answer 2

Firms may remain small if the market demand for their product or service is limited. In contrast, those with high demand may grow to meet it.

Example: A niche gourmet chocolate shop may stay small due to a niche market, while a fast-food chain like McDonald’s grows due to widespread demand.

Question 3

Managerial Capacity:

Answer 3

Definition: Some entrepreneurs may lack the skills or resources required to manage a large organization effectively.

Example: A skilled craftsman might prefer to run a small boutique shop rather than a large factory.

Question 4

government Regulations:

Answer 4

Explanation: Regulatory barriers can hinder or promote growth in specific industries.

Example: Taxi companies may remain small due to government regulations, while tech startups can grow rapidly with fewer restrictions.