size and types of firms (L1)

Question 1

reasons why firms seek growth

Answer 1

profit-more goods=more revenue= higher profit
lower unit costs from it usually
more market power
diversification by entering foreign market or producing new goods
managerial objectives (bonuses or to satisfy their ego)

Question 2

market power

Answer 2

ability of a firm to raise prices and earn supernormal profit

Question 3

diversification

Answer 3

range of products served by a business

Question 4

why do some firms choose to stay small

Answer 4

diseconomies of scale avoided
extra work + risks avoided
less regulation

Question 5

diseconomies of scale

Answer 5

business grows big and costs per unit increase

Question 6

why do some firms have to stay small

Answer 6

can’t finance expansion (banks see small firms as risky borrowers so offer credit on strict terms or don’t)
niche market with small customer base
skills/knowledge/ resources for extra regulation may be lacking

Question 7

private sector firms

Answer 7

not owned by gov, might be owned by shareholders as with a public limited company where anyone can buy shares in it. may be family owned where shares aren’t traded on stock market. can include sole proprietors and the aim is to satisfy their owners

Question 8

sole proprietors

Answer 8

owned by one person

Question 9

public sector firms

Answer 9

gov may own them as business can’t survive without state funding or gov wants to choose the direction the business takes eg NHS

Question 10

not for profit firms

Answer 10

don’t see profit as the primary goal, charities civil society etc

Question 11

principal

Answer 11

shareholder/owner of the business

Question 12

agent

Answer 12

in charge of day to day running of business

Question 13

principal agent problem

Answer 13

the agent might make decisions on behalf of the business that the owner may not like (principle not aware of agents actions) happens in large companies/when there’s asymmetric information