Sizes and types of firms

• Reasons why firms grow: owners desire to run large business, profitability, more market power, product diversification, easier access to finance
• Reasons why firms stay small: niche market, avoid regulation, lack of finance, avoid diseconomies of scale, offering a personalised service, objective to profit-satisfice rather than profit-maximise
• Divorce of ownership and control: The separation of ownership (the owners of the business) and control (managers who control the day-to-day running) as shareholders may want to maximise profit whereas managers may want to maximise the number of sales
• One way that principals attempt to diminish the principle-agent problem is by granting shares to employees and managers e.g John Lewis, Waitrose