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Firms - Coggle Diagram
Firms
small firms
The size of their market :
The most efficient size for a firm is closely related to the size of its market. If there are only a relatively small number of consumers willing and able to buy a product there is no point in a firm supplying that market expanding in scale significantly. Similarly, firms that produce luxury items may have relatively small or niche markets. Only consumers with very high incomes may be willing and able to pay high prices for 'exclusive' products such as designer clothing and jewellery, sports cars and luxury holidays.
Access to capital is limited:
Sole traders often have to use their personal savings to set up their firms, Banks are not normally willing to lend money to small, untested business propositions. This is because small firms usually lack assets they can offer a collateral against loans
New technology has reduced the scale of production needed
the size and cost of new technology has reduced significantly over time. Most small firms now have access to computes and other modern equipment. Many years ago they would not have been able to afford such equipment. Also, through the internet many small businesses can easily communicate with suppliers and consumers all over the world.
Some business owners may simply choose to stay small :
some entrepreneurs may simply decide they do not want to increase the size of their firm as long as they continue t o make a reasonable profit after tex. Runiing a larger enterprise can also be very time consuming and stressful.
classifications of firms
Secondary sector
Will use raw materials to manufacture finished goods
Tertiary sector
Provide services to public
Primary sector
Specialise in production and extraction of natural resources
Mergers
Internal Growth
External Growth
Horizontal
Vertical
Backward Vertical
Lateral integration
Conglomerate merger
Economies of scale
When the average cost of unit decreases as the firm increases the number of units produced
Internal economies of scale: Reduce the average cost of producing each unit of output as the scale of production expands within a firm
Financial economies
Technical economies
Purchasing economies
Risk-bearing economies
Marketing economies
External economies of scale: Firms within industry may also share additional cost advantages as the size of the industry increases
causes and forms of the growth of firms
Diseconomies of scale