A level economics Edexcel Theme 3

Why do firms grow?

1) To experience Economies of scale —> decreases cost of production, make more revenue by selling more units. Make larger profits 

2) Greater market share —> ability to influence prices and restrict the ability of other firms to enter the market, helping them to make more profits in the long run. Monopoly power often means firms have monopsony power, and so will be able to reduce their costs by driving down the prices of their raw materials

3) Security: a larger firm will have more security as they will be able to build up assets and cash which can be used in financial difficulties. Able to spread risk by selling a bigger range of goods and in more than one local/national market. 

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