3.1- Sizes & types of firms

• Why do firms grow?

  • Aiming for higher profit
  • Gain stronger market power to become a monopoly and increase profits
  • Gaining easy access to finance
  • Reduce average costs
• Why do firms remain small?

  • Offer personalised service
  • Operate in mass markets with low barriers of entry
  • Inability to access finance
  • Prioritise acceptable quality of life over profit maximisation
• Public vs Private sector organisations?

  • Public sector orgs are owned and controlled by the state. Their goal is to provide a service
  • Private sector orgs are owned and controlled by private individuals. Goal is profit maximisation.
  • More efficient type is the private sector
• Profit vs non-profit organisations?

  • Profit: Goal is to make a profit
  • NGOs provide a service /need, sell goods, and use profits for further objectives
• What is the Principal-Agent problem?

  When a group (agent) makes decisions on behalf of another group ( principal), by placing their priorities over the Principal's