3.1.1 sizes and types of firms

Why do some firms tend to remain small?

Some firms remain small because of constraints on growth: the size of the market, access to finance, owner objectives and regulation. Not all firms want to grow,

Why do some firms grow?

Some firms grow because they will be able to experience economies of scale, gain monopoly power, for greater security.

Why does experiencing economies of scale a reason why firms want to grow?

By growing, a firm will be able to experience economies of scale, which helps them to decrease their costs of production. They will be able to sell more goods, so make more revenue. Together, these a firm will make a larger profit (many firms are motivated by profit).

Why is gaining monopoly power a reason why firms want to grow?

A larger firm will hold a greater share of their market, so ability to influence prices and restrict the ability of other firms to enter the market, helping them to make profits in the LR. Monopoly power means firms have monopsony power, so able to reduce their costs by driving down the prices of their raw materials.

Why is greater security a reason why firms want to grow?

A larger firm means greater security, as they will be able to build up assets and cash which can be used in financial difficulties. Also, likely to sell a bigger range of goods in more than one local/national market, so less affected by changes to individual products or places.