3.5 - firms Flashcards
1
Q
size of firms
- how to determine?
A
firms of all sizes exist
- small firms: sole trader of partnership - small/large firms: Ltd (limited) - very large firms: PLC (public listed company) or MNCs (multinational company)
determining size
- age of firm - availability of financial capital - type of business - size of market - interrnral + external economies of scale
2
Q
why some firms are small (10)
A
- market size is too small
- preference of consumers, e.g. they like smaller firms like tailors
- owner’s preference
- flexibility
- technical factors - no need for large capital
- lack of financial capital
- location
- cooperation between small firms
- specialisation
- gov support
3
Q
why some firms are big
A
- benefits from economies of scale
- costs can be lower
- natural monopoly
- large market –> lots of demand
- lots of capital needed
4
Q
types of integration of firms
merge + takeover definitions
A
merge: joining with another company
takeover: purchasing another company
- vertical
- forward
- backward
- horizontal
- lateral
- conglomerate
5
Q
vertical integration
A
firm merges/takeover with another firm in a DIFFERENT stage of production
- vertical backward integration
- firm merges with/takes over another firm in a previous stage of production, e.g. a firm that is a source of the og firm's raw materials or components
- vertical forward integration
- firm merges with/takes over another firm in the next stage of production
- expands to other sectors and hopes to gain control as to how to sell the products
6
Q
horizontal integration
A
firm merges with another firm in the same stage of production
- combines forces to grow firms - eliminates competition - share costs - larger firm can capture more market share - efficiency
7
Q
lateral integration
A
firm merges with another firm that sells/produces related goods
- diversifies business and introduces new products - firms are not in direct competition
8
Q
conglomerate integration
A
- firm merges with another
