3.1.1 Sizes And Types Of Firms Flashcards
Identify and explain 3 reasons why some firms grow
- To gain economies of scale
- To diversify and spread risk
- To increase market share
- Managerial Motive
- Profit motive
Identify and explain 3 reasons why firms choose to stay small
- Family Motive
- Avoid diseconomies of scale
- May operate in a niche market
What is a PLC
A Public Limited Company is one where the shares are sold on the stock market for anyone to buy.
Define the divorce of ownership from control for a firm
This is where the owner of a firm doesn’t get involved with the day to day running of the firm.
What problems can occur if there is divorce of ownership and control in a firm?
There can be a lack of transparency which means that the owners are not informed about the running of the business. This means that the managers may run the business in order to satisfy themselves.
This can also lead to satisficing
Define the principal - agent problem
This is where the principal is the shareholder and the agent is the manager. This problem is where there is a lack of communication and information being shared. This leads to the manager running the business differently (for self benefit) in comparison to the shareholders wants.
How does the principal agent problem affect the behaviour of firms?
It leads to other objectives rather than profit maximising.
What is meant by a public sector organisation?
A public sector organisation is an organisation owned and funded but the government.
What is meant by a private sector organisation?
An organisation that is owned and run by shareholders or private individuals.
Distinguish between a not-for-profit and a for profit organisation.
Profit organisations’ top aim is to maximise profits, whereas a not-for-profit generally aims to improve welfare or other aspects i.e. charities, trusts, animal protect etc
