Size and types of firms

Question 1

1) Why do some firms remain small?

Answer 1

• Size of market is small-if firm is operating in specialist segment of market (niche market) then they are likely to stay small
• Limited access to finance-may be regarded as high risk by banks
• Owner objective to retain control of buisiness-to retain control, owners may be unwilling to expand

Question 2

2) Why do some firms remain small?

Answer 2

• Lack of economies of scale-there may be no incentive for a firm if there are no potential of cost savings
• Individual personalised services-nailbars, personal trainers and osteopaths are examples of firms that are often small as they wish to deal with a particular person
• Need for dynamic, responsive, service-led firm-firms in design often remain small and quick to respond to the needs of larger firms that buy their services

Question 3

1)Why do some firms grow?

Answer 3

• To benefit from economies of scale-larger firms often have lower costs per unit of output in the long-run
• To increase market share-so they can control prices, retain customer loyalty and reduce the threat of competitors

Question 4

2)Why do some businesses grow?

Answer 4

• To reduce risk-larger firms that diversify and produce a range of products benefit from economies of scope as if they specialised in one product if demand is reduces they could go out of business.
• To meet managerial objectives- firms may wish to grow to seek bonuses as managers are related to saves revenue due to managers seeking higher status of being part of a large organisation

Question 5

The divorce between ownership and control

Answer 5

• Shareholders (principals) own most large businesses and they appoint directors and managers (agents) to control the business on their behalf
• Shareholders want to maximise profits (to maximise their dividens), whereas managers may have different motives like wanting to increase sales at the expense of profits

Question 6

The private sector

Answer 6

• Part of the economy in which the assets are owned by individuals or groups and not the government. E.g spire hospitals which are funded by private payments from individuals or companies

Question 7

The principal-agent problem

Answer 7

• The pricipal-agent problem is when the aims and policies of the principals and agents diverge and conflict with each other.

Question 8

The public sector

Answer 8

• Part of the economy owned by society as a whole and regulated/provided by the government.E.g NHS hospitals that are funded through taxation

Question 9

Private sector firms

Answer 9

• Owned by private individuals or groups of private individuals. They usually aim to make profit, without which they may not survive.The main types of these include:
  -sole proprietors
  -partnerships
  -joint stock companies (private and public)
  -cooperative societies

Question 10

Public sector firms

Answer 10

• Owned by the government. They can survive withou profit because the government can make up anyshortfall in revenue from taxation
• UK examples are the education, policing and healthcare
• Some public sector firms do aim to make a profut but tend to have other aims that are more important.

-E.g Network Rail is funded through the govenment grants and charges levied on train operators that use the rail network, and via its commercial propertystate

Question 11

Profit organisations

Answer 11

• These aim to make or maximise profit

Question 12

Non-profit organisations

Answer 12

• Are apart of the private sector
• Independant organisations whose purpose is something other than to make private profit for directors, members or shareholders
• They include many different types of organisation, such as charities and social enterprises.
  -UK examples being-Divine Chocolate, the Motor Neurone Disease Association and the World Wide Fund for Nature (WWF).
• They usually have to cover their own costs and any surpluses are ploughed back into the business

Question 13

Stakeholder definition

Answer 13

any individual or organisation who has a vested interest in a business

Question 14

Shareholder definiton

Answer 14

Own the business (have a share), May work in the business. Interested in growing the value of their shares

Question 15

Different stakeholder intrests-Shareholders/Owners

Answer 15

Return on investment and profits and dividens as a source of income

Success and growth of the business

Proper running of the business including meeting standards of corporative governence

Question 16

Different stakeholder intrests-Managers and Employees

Answer 16

Rewards, including basic pay and other financial incentives
Job security and improved working conditions
Promotion opportunities and job satisfaction and status-motivation, roles and responsibilities.

Question 17

Different stakeholder intrests-Customers

Answer 17

Value for money, consumer surplus/real purchasing power, product quality, performance and relaibility of customer service including after sales service

Question 18

Different stakeholder intrests-Suppliers in the market

Answer 18

Continues, profitable trade with the business
Financial stability-can the business pay its bills?
Minimising the problem of late payment to suppliers

Question 19

Different stakeholder intrests-Banks and other finance providers

Answer 19

Can the business repay amounts loaned or invested?
-Profitability and cash flows of the business
-Growth in profits and value of the business

Question 20

Different stakeholder interests- Governemnt

Answer 20

The correct collection and payment of taxes (e.g VAT and national insurance)
-Helping the business grow- creating jobs e.g in areas of above average unemployment
-compliance with business legislation including environmental laws and health and safety

Question 21

Different stakeholder interests-Local community

Answer 21

Success of the business- particularly creating and retaining jobs
-Compliance with local news and regulations (e.g noise and pollution)