State and explain four reasons firms of different sizes may exist in the same industry.
- When the Long-Run Average Cost curve (LRACC) has a flat bottom over a wide range of output, then firms of different sizes producing at any quantity along this flat bottom can compete. For instance if The flat section of the long-run average cost curve range between 500 to 20000 output, single manufacturing plant producing a quantity of 5,000 has the same average costs as a single manufacturing plant with four times as much capacity that produces a quantity of 20,000.
- Size of the market. I case of small market, some firm will decide to remain small so as to produce what is just enough for the available market despite the fact the market has a potential to expand
- Differences in entrepreneurial Skills: An entrepreneur of outstanding ability will be able to procure as much finance as he may need, hire the requisite labor force and build up a huge business. But an entrepreneur of moderate ability will run business on a moderate scale and a man of limited entrepreneurial skill will be content with a small business
- Managerial Ability: firms with a manager of great ability, the size of the firm will grow to considerable dimensions. On the other hand, a mediocre manager will have a small-sized firm to manage.
- Availability of Finance: firms with large startup capital will be bigger than those with small startup capital
- Lack of ambition to grow. Most owners of small scale firms do not have the ambition or wish of growing large due to fear of sacrificing control and interdependence of a firm.
- Stage of development. Firms may be small because they have just started and have not gotten time to grow.
- Use of the by-product of other firms. Some firms remain small because they use by-products of bigger firms as input and their expansion will depend on operation of big firms e.g. sweet firm alongside sugar firm.
- Provision of raw material to other firms. Firms remain small when they serve a source of raw materials to big ones.
CATEGORIES Economics
TAGS Dr. Bbosa Science
