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Firms and Decisions - Coggle Diagram
Firms and Decisions
EOS
IEOS: SOP↑, AC↓
technical economies
indivisibilities of factor inputs: capital input can greatly increase productivity BUT too large and expensive → small firms cant used efficiently only big firms with higher output can better spread out cost → more viable for large firms to use such machines
eg. combine harvester
specialization/ division of labour: split production process into separate tasks aka 'divide and conquer'
marketing economies
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bulk buying: large firms, greater bargaining power to negotiate for lower prices from suppliers
managerial economies: hiring professionals to do specific jobs, increases productivity
OR hire managers to increase productivity of workers
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EEOS: industry expands, AC↓
economies of information
industry expands, share knowledge and info, cost savings
eg. joint research facils, spread out r&d costs, greater scope to develop common industry standards to reduce wastage and duplication
transportation: govts invest in transport networks to support larger industries, helps to lower transportation and logistics costs
IDOS: SOP↑, [AC↑]
managerial diseconomies: SOP↑, harder to coordinate work between departments, lower productivity
worker demotivation: large firms, workers feel neglected, decreased motivation and productivity
EDOS: industry expands, AC↑
competition for factor inputs: industry expands, shortage of labour, industry bid up wages to retain/hire skilled workers
dd for raw materials ↑, factor inputs prices ↑
competition for land for expansion, rent and purchase more ex
AC↑
objectives of firm
profit maximising
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rationality assumption → firms are assumed to maximise
their self-interests and strive for the highest possible total profit with given resources.
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