Large Firms

Created by: Adrian
Created on: 22-05-13 09:41


	Large Firms
	Advantages Economies of Scale: These are advantages because of a firm's large size. These allow firms to reduce their average costs and have a larger scale of production Financial: It is easier for firms to borrow money. They can borrow loans at a lower rate of interests as they are less likely to go bankrupt Marketing: They are able to spend more money on advertising They can bulk buy (Afford to buy materials in bulk therefore unit costs are cheaper and they may be given discounts) Technical: Afford to buy more capital, such as machinery to produce a large scale of production They can employ specialized workers and use division of labor They can use risk bearing, in which they produce a range of products so that if a demand for one product falls they still have income from other products	Disadvantages Breakdown of communication Delayed decision making and more disagreements Decrease in staff morale as it may be difficult to retain close personal contact with staff because of the firm's large size. Hence, they find less motivation to make their products, and hence the quality of the product may be affected If there is specialization, workers may find their jobs repetitive and boring
	Evaluation There are many advantages a large firm can get, and these are called economies of scale. They can, firstly, borrow more money at a lower rate of interest as they are large and less likely to go bankrupt. They can also buy in bulk at a cheaper price, and they can spend their money on advertising. They can use specialization, which fastens the rate of production. Lastly, they can use risk bearing, because if a demand for a specific product decreases, they still have other products to sell. However, there are disadvantages, also known as diseconomies of scale. For instance if a firm gets too big, there may be breakdowns of communication. THis may delay decision making and hence engender disagreements. Also, there may be decrease in staff morale as it may be difficult to retain close personal contact with staff because of the organization's large size. Furthermore, because of specialization, workers may find their jobs boring and repetitive.

Large Firms

Advantages

Economies of Scale: These are advantages because of a firm's large size. These allow firms to reduce their average costs and have a larger scale of production
Financial: It is easier for firms to borrow money. They can borrow loans at a lower rate of interests as they are less likely to go bankrupt
Marketing: They are able to spend more money on advertising
They can bulk buy (Afford to buy materials in bulk therefore unit costs are cheaper and they may be given discounts)
Technical: Afford to buy more capital, such as machinery to produce a large scale of production
They can employ specialized workers and use division of labor
They can use risk bearing, in which they produce a range of products so that if a demand for one product falls they still have income from other products

Disadvantages

Breakdown of communication
Delayed decision making and more disagreements
Decrease in staff morale as it may be difficult to retain close personal contact with staff because of the firm's large size. Hence, they find less motivation to make their products, and hence the quality of the product may be affected
If there is specialization, workers may find their jobs repetitive and boring

Evaluation

There are many advantages a large firm can get, and these are called economies of scale. They can, firstly, borrow more money at a lower rate of interest as they are large and less likely to go bankrupt. They can also buy in bulk at a cheaper price, and they can spend their money on advertising. They can use specialization, which fastens the rate of production. Lastly, they can use risk bearing, because if a demand for a specific product decreases, they still have other products to sell. However, there are disadvantages, also known as diseconomies of scale. For instance if a firm gets too big, there may be breakdowns of communication. THis may delay decision making and hence engender disagreements. Also, there may be decrease in staff morale as it may be difficult to retain close personal contact with staff because of the organization's large size. Furthermore, because of specialization, workers may find their jobs boring and repetitive.

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Large Firms

Large Firms

Advantages

Disadvantages

Evaluation

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