Size and types of firms

Question 1

What are reasons some firms tend to remain small and why others grow?

Answer 1

Production differentiation & having a USP
Flexibility in meeting customer need
Deliver a high standard of customer service
Exploit opportunities from e-commerce
Avoids risk of higher unit costs from internal diseconomies from internal diseconomies of scale
Smaller firms can be innovative/creative and respond more quickly to changing market trends

Question 2

What is the significance of the divorce ownership from control the principal agent problems?

Answer 2

The principal agent problem is an asymmetric and problem. Owners of firm often cannot observe directly the day-to-day decisions of management. The decisions and performance and agent are costly and difficult to monitor.

Question 3

How to overcome the principal agent problem?

Answer 3

Employ share ownership schemes
Long term employment contracts for senior management
Long term stock commitment

Question 4

What is the public sector organisation?

Answer 4

Public sector organisations are wholly or partly owned and run by the state / government.

Question 5

What it is privatisation?

Answer 5

Privatisation means the transfer of assets from public sector to the private sectors of an economy.

Question 6

What is not-for-profit organisation?

Answer 6

Not for profit business are charities, community organisation that are run on commercial.