Reasons for Staying Small

• what is the advantage of small firms targeting niche markets?

  they have low overhead costs so do not need to achieve the volume of sales required by larger competitiors --> easier to achieve profit
• diseconomies of scale


  a firm's average costs start to increase with increasing output
• what are the six reasons why a business might decide to stay small?

  • ability to offer a more personalised service and focus on building relationships with customers
  • high ability to respond quickly to changing customer needs/preferences
  • may be unable to access finance required for expansion
  • avoids diseconomies of scale which may arise due to rapid growth
  • product offered is in a niche market and a smaller market size can be very profitable
  • owners goal is not profit maximisation but rather an acceptable quality of life (satisficing)