Business Growth Flashcards
Why do some firms decide to stay small?
DOES
Diseconomies of scale - large firms could have high costs
Owners - don’t want to grow
Economies of Scale relative to market size - small EoC compared to the size, might make costs higher
Small firms as monopolists - monopoly power in terms of a more personal local service
Why do firms decide to grow?
DOMP
Diversification - by expanding product range firms reduce their risk of making huge losses
Owners - managers might want higher incomes, more holiday or more leisure time
Market Power - more dominance over a market so they can discourage new entrants
Profit Motive - by growing firms get the opportunity to earn higher profits. Economies of scale
Principle agent theory
The agent makes the theory for the principal
The agent is inclined to act in their own interests, rather than those of the principle
Public sector distinctions
Government has control
Natural monopolies eg water
Some public sector industries yield strong positive externalities eg public transport reduces congestion and pollution
Public sector has different objectives social welfare might be a priority and fairer distribution of resources
