theme 3 Flashcards
why firms grow
economies of scale, greater share of the market, more security with built up assets
why firms remain small
constraints on growth, size of the market, access to finance, owner objectives
private sector
owned and run by individuals- sole traders and plc’s
public sector
owned and run by the government
organic growth
increase in output e.g increasing labour or product range
advantages of organic growth
keep control over business, inexpensive
disadvantages of organic growth
other firms may have better markets or growth, harder to find new ideas, may be too slow
vertical integration
merger or takeover integration and different stages of production
horizontal integration
merger or takeover of firms at the same stage of production
conglomerate integration
firms in different industry integrate
reasons for demergers
value of the company, different objectives
profit maximisation
produce at mc=mr
revenue maximisation
produce at mr=0
sales maximization
produce at ac=ar
managerial utility maximisation
managers will make decisions to maximise their own satisfaction
allocative efficiency
firms aim to maximise social welfare produce mc=ar
fixed cost
costs that remain constant e.g. rent
variable costs
costs that change with output e.g. raw materials
diminishing marginal productivity/diminishing law of returns
there will come a point when each extra unit will produce less extra output than the previous
financial economies
greater security due to more assets
reasons for diseconomies of scale
workers, geography, price of materials, management
productive efficiency
produce at the lowest average cost so minimum resources used for maximum output -mc=ac
dynamic efficiency
when resources are allocated efficiently over time with new products
x-inneficiency
fails to minimize average costs doesnt produce at lowest point on ac curve
