3.1.1 Sizes and types of firms

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7 Terms

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reasons why firms grow

  • experience economies of scale

  • increase revenue and profit

  • less risks


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reasons why firms remain small

  • constraints on growth

  • the size of the market

  • owner objectives and regulation


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principle-agent problem

occurs when one agent can make decisions which impact another entity (principal)

  • this is a reason why firms struggle to grow further due to conflicting objectives


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private sector

refers to the part of the economy that is owned and run by individuals or groups of individuals

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public sector

refers to the part of the economy which is owned or controlled by a local or central government

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profit organisations

aim to maximise financial benefits for their shareholders, usually private sector organisations

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non profit organisations

do not earn profits for its owners and aim to maximise social welfare, usually charities or public sector organisations