3.1.1 Size and types of Firms Flashcards

1
Q

What is the private sector?

A

Made up of firms that are owned by private individuals

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2
Q

What is the public sector?

A

Made up of firms that are owned by the state

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3
Q

Give 3 reasons why a firm may want to grow within a market?

A
  • economies of scale
  • influence prices
  • build up assets
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4
Q

Why would economies of scale benefit a firm that wants to grow?

A

By a firm increasing their economies of scale, they can reduce their costs of production meaning they are able to sell more goods and therefore make more revenue. This will increase profits

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5
Q

Why would influence over prices mean a firm may want to grow?

A

A larger firm will hold more market share. This will give them the ability to influence prices and restrict the ability of other firms to enter the market.

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6
Q

Why would a building up of assets and cash mean a firm will want to grow?

A

So they can use the built up money in financial difficulty. Moreover, doing this they are able to sell a larger range of goods to national and international markets

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7
Q

What are the reasons for why a firm may want to remain small?

A
  • the size of the market
  • access to finance
  • owner objectives
  • regulation
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8
Q

What is the principal agent problem?

A

When one group, the agent, makes decisions on behalf of another group, the principal. Agents want to maximise their own benefit, compared to the principal who wants to profit maximise

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9
Q

Explain the principal agent problem…

A

Firms are owned by their shareholders and run by the CEOs. The problem is the owners will want to profit maximise (to get a greater return on their investments), but CEOs will want to do what will maximise their own benefit i.e. profit or sales maximising

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10
Q

What is a ‘for profit’ organisation?

A

When a firm wants to maximise the financial benefits for their share holders.

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11
Q

What is a ‘not for profit’ organisation?

A

When a firm wants to maximise social welfare by helping individuals and groups

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