3.1.1 Sizes and types of firms

Question 1

Reasons Firms Stay Small

Answer 1

Niche/Specialist/Size ofMarkets
Lack of finance
Owner Objectives
Regulations
Diseconomies of Scale

Question 2

Reasons Firms Grow

Answer 2

Economies of Scale
Aiming for increased market share
Growth Strategies (sales/output maxing, predatory pricing)

Question 3

Divorce of Ownership & Control

Answer 3

As firms expand, owners appoint managers to oversee operations, resulting in a separation between owners managers

Question 4

Principal-Agent Problem

Answer 4

The conflict of interests between owners and managers due to differing objectives

Question 5

How is the Principal-Agent Problem exacerbated by information gaps?

Answer 5

Managers possess more knowledge and can control its flow

Question 6

What are Public Sector Firms and what are their Goals

Answer 6

Organisations Owned and Controlled by the government
Their Goals are to provide services

Question 7

What are Private Sector Firms and what are their Goals

Answer 7

Organisations Owned and Controlled by private individuals
Their goals depend on shareholders but is usually Profit maximisation