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Sizes and types of firms - Coggle Diagram
Sizes and types of firms
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Why other firms grow
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Respond to external forces like technological advancements, legal change or changes in consumer demand
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Principal-agent problem
This allows them to focus on their own interests like growth of the firm or substituting leisure time for work
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The agent will look after their own interests and will have to achieve a level of profits which satisfy the owners of the firm
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This is where there is a difficulty in getting one party to work in the best interests of the principal party
As the manager is in control its hard for the owners to have an insight into the running of the firm
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Moral hazard
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Inappropriate activity can be covered up since the owners won't be aware because of information asymmetry
The reward of success will be felt by the individual and will outweigh the risks when undertaking an activity
This happens as the individual is willing to take risks as the impact of failure will be felt more by the owner than the individual
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Not for profit
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Members can be customers, employees, suppliers/producers etc
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