size and type of firms and business obj Flashcards
What are the 3 sectors of operation
Private, Public, Philanthropic
What is private sector, their obj and disadvantages
Owned by firms and individuals which use free market forces and own funding to run them
Survive if small
To expand and grow
Maximise profits and revenue
More chance of monopolies as no gov intervention
High set up costs
Risk of failure
What is Public sector, their obj and disadvantages
Used to benefit society and maximise the social welfare, run by the government
Benefit society
Satisfy consumer
reduce societal cost
Underconsumed
Free rider problem
uses government funding (OC)
What is Philanthropic, their obj and disadvantages
Not for profit organisations such as charities which are privately run or government run
help society
be ethical
create a community
Could use government subsidies(OC)
Difficult to sustain as no profits to run
What is shareholder, stakeholder, dividends, capital, capitalist, socialist and profit mean
Shareholder: An individual who buys a share and invests in the business to own a part of it
Stakeholder: Individuals and Organisations who affect or affected by a business
Dividends: Percentage of profits which go to shareholder
Capital: Money business has
Profit: Difference between revenue and costs
Capitalist: Profit and expansion encouraged, inequality
Socialist: Equality between everyone, government allocates resources equally and pays everyone same
what is Principle agent problem
who are they
Principle has different objectives compared to the agent
principle= CEO
agent= employees
Sports direct derby deducting 15 mins with of wages for being 1 min late is example
What are issues with the principle agent problem
Not having same objectives as owners
Workers incentivised to financially better themselves
More risks taken by agents
Asymmetric info as principle may not know what agents are doing
workers focus on short term
What does principle agent problem lead to
Leads to divergent aims and which leads satisficing behaviour
satisficing: Individual or organisation only works to a satisfactory solution rather than exceeding
Why do some firms grow
Make greater profits
Get more customers
increased concentration ratio
increased brand image
diversify products
Why do firms stay small
Less costs
better communities
owners objectives
keep full control
risk of failing with expansion
don’t have finance to grow
What are some business objectives
Improve employee retention
Increase concentration ratio
Customer satisfaction
survive
expand and grow
make and maximise supernormal profits
control the market
