ECONS 101

SMALL & LARGE FIRMS

Hey Everyone, Lovely New Week even though its ended but um its beautiful today isn't it. FRIDAY!!!. LOLZ- Its very self-explanatory.... Okay let's work a lil before we throw our books to the other side *winks*.

A Firm is defined as an independently administered businesses unit which is capable of carrying out production, construction or distribution activities. It forms an industry with other firms performing or producing complementary goods and services. Firms may be small or large depending on capital outlay and the level of production.

CHARACTERISTICS OF SMALL & LARGE FIRMS:

Characteristics	Small Firms	Large Firms
1. Capital Requirement	Require Small Capital Outlay.	Require Large Capital Outlay.
2. Type of Industry	They are mainly involved in primary production, agriculture and some direct services.	They are mainly involved in secondary and tertiary production.
3.  Nature of Market	They require small market due to output of goods.	They require a large market because of their high output of goods.
4. Employment	They usually employ few workers.	They usually employ large number of workers.
5. Techniques of Production	They employ simple techniques as most of the operations are manual.	They employ heavy techniques, with machinery and equipment.
6. Economies of Scale	They cannot take advantage of economies of scale.	They can easily benefit from internal and external economies of scale.
7. Nature of Product	They have no special or standard design for their product.	Their product is subject to standardisation.
8. Research and Publicity	They may lack the resources to carry out research and publicity.	They usually embark on extensive research and publicity to enhance their efficiency.

ECONOMIES OF SCALE/ SCALE OF PRODUCTION

Economies of Scale can be defined as the growth of a firm as a result of the expansion of the volume of productive capacity resulting in the increase in output and a decrease in its caot of production per

unit of output.

TYPES OF ECONOMIES OF SCALE:

There are two major types of scale of production and they include:

v  Internal Economies and Internal Diseconomies.

v  External Economies and External Diseconomies.

1.  INTERNAL ECONOMIES & INTERNAL DISECONOMIES

It is also called Economies of Large Scale Production and can be defined as the advantage which a firm derives as a result of its increase in size and expansion of its output. As the size of the firm increases or expands, this will lead to greater efficiency and a resultant fall in the cost per unit of output. These advantages being enjoyed by this firm could come from financial, managerial or technical large scale of production which takes place within the firm.

CLASSIFICATION OF INTERNAL ECONOMIES OF LARGE SCALE OF PRODUCTION:

# Financial Economies- A Large Business firm or unit raise fund from banks or other sources, purchases raw materials in bulk at a cheaper rate and this will affect the cost of the finished product.

# Administrative Economies- As a result of a sound financial base, a large business firm is capable of employing experts and competent managers to manage the firm efficiently.

# Welfare Economies- A Large Firm is able to raise efficiency of labour through improving the conditions under which people work by providing them with canteens, recreational facilities, medical facilities etc.

# Specialisation Economies- As a result of increase in size and strong financial base, a firm, through division of labour, enables individuals to specialise in certain operations.

#  Research Economies- A Large Firm, as a result of its size and strong financial base, is able to carry out research work into new areas in order to improve production.

LIMITATIONS TO THE SCALE OF PRODUCTION & GROWTH OF FIRMS:

* Increased Risks- It is known that the bigger a firm, the greater the level of risks and vice versa. In order to reduce risks, the size of the firm has to be reduced.

* Falling Price of the Commodity- A Falling Price of the Commodity without corresponding increase in supply definitely tends to lower the scale of production.

* Availability of Capital- Adequate Capital and other resources have to be available in order to enable a firm to expand and produce more goods, but when these resources are not available, growth and expansion are impossible.

* Need to Cater for Individual Taste- Large Firms are known and associated with standardisation of products, which does not meet the taste of individuals. To meet this taste, there will be limitations in the scale of production.

2. EXTERNAL ECONOMIES & EXTERNAL DISECONOMIES

External Economies are the benefits a firm derives from concentration or localisation of industries in a particular area. These are the benefits a firm enjoys from increase in its output and decrease in cost as a result of the kind of assistance it derives from other firms within the same location.

External Diseconomies is the disadvantages a firm experiences when the activities of one or more industries increase the cost of production or output of that firm within the same location.

NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR SENIOR SECONDARY SCHOOLS BY C.E ANDE.  WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO MUCH TO DENY ITS ORIGIN. THANK YOU

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