reasons for business growth and types of firms

Question 1

reasons why firms seek growth:

Answer 1

• profit - bigger size = produce more g+s
• costs - EoS
• market power
• diversification - increase range of products
• managerial objectives - manager bonuses

Question 2

reasons why some firms CHOOSE to remain small:

Answer 2

• worried about DEoS
• owners do not want extra work and risks when expanding
• do not wish to face increased scrutiny from regulators

Question 3

reasons why firms MUST remain small:

Answer 3

• unable to finance expansion. banks may not provide low IR
• operate in a niche market
• human capital required lacks
• lack resources to cope with regulators

Question 4

private sector

Answer 4

• not owned by government

Question 5

public sector

Answer 5

• state run companies

Question 6

not for profit

Answer 6

• exist to provide services

Question 7

Principal-Agent problem

Answer 7

divorce of ownership
- principal = shareholder/ owner
- agent = in charge of running day to day business
- sometimes manager can behave in a way which conflicts with owner objectives, e.g. Antony Jenkins of Barclays July 2015