Economics (9-1) - 0987 CIE

Firms

Overview

Firms come in every shape and size, from a single hairdresser to a global giant like Toyota or Walmart. They are the engines that turn the factors of production into the goods and services we buy. Understanding how firms are classified, why some stay small while others grow huge, and what happens to their costs as they expand is central to microeconomics.

In this lesson you will classify firms by sector and by ownership, weigh up the strengths of small versus large firms, and learn the three types of merger. Then you will dig into economies and diseconomies of scale: why average costs fall as a firm grows, and why they eventually rise again. By the end you will be able to analyse a firm's size and growth like an examiner.

Objectives

primary/secondary/tertiary sector firms
private sector/public sector firms
advantages and disadvantages of small and large firms
definitions, examples, advantages and disadvantages of different types of mergers: horizontal, vertical and conglomerate
how internal and external economies and diseconomies of scale can affect a firm/industry as the scale of production changes
drawing and interpretation of average total cost (ATC) diagrams to illustrate economies and diseconomies of scale

Lesson Note

How firms are organised and how big they grow shapes prices, choice, competition and jobs across the whole economy. Economies of scale, in particular, explain why large firms can charge lower prices, and they reappear in market structures, monopoly and international trade.

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Lesson Evaluation

Congratulations on completing the lesson on Firms. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

A firm that mines coal operates in which sector? A. primary B. secondary C. tertiary D. public Answer: A
Two soft-drinks manufacturers join together. This is an example of a: A. vertical merger B. horizontal merger C. conglomerate merger D. takeover by the government Answer: B
Which is an internal economy of scale? A. proximity to related firms B. a local pool of skilled labour C. bulk-buying of raw materials D. the reputation of the area Answer: C
Diseconomies of scale occur when: A. average costs fall as output rises B. average costs rise as the firm becomes too large C. a firm buys a supplier D. small firms merge Answer: B
The main aim of a public sector firm is usually to: A. maximise profit B. provide a service C. take over rivals D. export goods Answer: B