Nature of Firms

Question 1

Methods of measuring the size of a business

Answer 1

1. Number of employees
2. Market share
3. Sales turnover
4. Amount of capital employed

Question 2

Number of employees

Answer 2

A business with a lot of employees is considered large but a business which uses a capital intensive method of production will have a smaller number of employees.

Question 3

Sales turnover

Answer 3

Sales turnover [sales revenue] is the amount of money a business gets from the sale of its products. A business with a larger sales turnover is considered to be a large business. This comparison can only be made by businesses in the same industry.

Question 4

Amount of capital employed

Answer 4

Capital is the name given to the amount of money invested into a business. If a lot of money is invested into a business, the business is considered to be a large business. This comparison can only be made by businesses in the same industry.

Question 5

Market share

Answer 5

Market share is the percentage of a market’s total sales that is earned by a particular company over a specified period of time. Market share is calculated as : total sale of business/ total sales of industry x 100.
However a business can only be considered large if the total size of the market is large.

Question 6

How small firms compete with large firms

Answer 6

1. small firms are closer to their customers
2. small firms are more flexible
3. small firms can keep their costs lower
4. small indecent firms can come together to form a buying group to negotiate discounts on joint orders.