Firms
The size of firms
- Firms range from one person to huge companies; measure size by workers, capital, or output.
- Some stay small because the market is small, the product is personal, the owner wants control, or there's little money to grow.
Practice
A reason a firm might stay small is:
Small/personal markets, a desire for control, or little finance keep firms small.
How firms grow
- by selling more, or by joining another firm in a merger (or takeover):
- horizontal — same stage, same industry,
- vertical — different stages of one industry (backward = supplier; forward = seller),
- conglomerate — different industries.
Practice
A car maker joining with a tyre maker is a:
Joining firms at different stages of the same industry is a vertical merger.
Business failure
- Firms close from high costs, too few sales, poor management, too many rivals, no cash, or falling demand.
Practice
Which can cause business failure?
High costs, few sales, poor management, too many rivals, no cash or falling demand cause failure.
You've got it
Key idea
- measure firm size by workers, capital, output; small firms suit small/personal markets
- growth: merger — horizontal / vertical / conglomerate
- business failure comes from high costs, low sales, poor management or no cash