3.1.1 Sizes and Types of firms Flashcards
What are the benefits of growing as a firm?
Economies of scale
More revenue
Larger profit
What is the public sector?
The part of the economy that is owned or controlled by local or cental government.
What is the principal agent problem?
In large firms there is a seperation of ownership and control.
Firms are owned by their shareholders who play no role in day to day running of the business.
Managers have a bigger role in day to day descision making.
The owners want to maximise profit, managers want to maximise their own benefit.
It basically the difference in goals between two different roles in a business.
It is for this reason that many firms are not run to
profit-maximise but to profit satisfice
Benefits of being a larger firm
Greater share of market = ability to influence prices = restrict ability of other firms to enter the market.
Monopoly power usually = monopsony power = reduce costs
Also more security = build up assets and cash
Also sell a bigger range of goods so less affected by changes in the market.
What are the restrictions to growth
Size of market, access to finance, owner objectives, regulation.
Define non profit organisations
Some private sector organisations are not-for-profit.
Any profit they do make is used to support their aim of maximising social welfare and helping individuals and groups.
These organisations include charities and smaller organisations who aren’t
large enough to be classified as charities.
What is the private sector
The part of the economy that is owned and run by individuals or groups.
