Edexcel A Level Economics A:复习笔记3.1.1 Size & Types of Firms

• Many firms start small & will grow into large companies or even multi-national corporations (Amazon started in a garage)

Reasons Why Firms Grow

• While many firms grow, others do not or they intentionally choose to remain small

Reasons Why Small Firms Exist

• As firms grow, the owners (or shareholders) often appoint managers to run the business for them
• There is a separation (divorce) between the owners and the managers who control the day-to-day running of the business
• This divorce gives rise to the Principal-Agent problem
  • E.g. Shareholders want to maximise their profits, but workers want to maximise their salaries
  • E.g. Shareholders want to maximise their profits, but managers may want to maximise the number of sales over the value of the sales
• The problem is exacerbated by information gaps in that the agents have a lot more information than the owners and are often able to control the flow of that infromation
• One way that Principals attempt to diminish the problem is by granting share options to managers
  • If managers are shareholders, then they will be likely to align their interests more with those of the owners

• Public sector organisations are owned & controlled by the Government
  • Their goal is not profit maximisation but to provide a service
  • There are a wide variety of government owned organisations in the UK
    • Corporations like the BBC and Channel 4
    • National services such as State Schools & National Health Service Trusts
    • Local services such as Transport for Greater Manchester
    • Civil service departments such as Defence, Police, Education
    • Regulatory bodies such as the General Dental Council
• Private sector organisations are owned & controlled by private individuals
  • Types of ownership vary from sole trader to partners to company shareholders
  • The goal of most private sector organisations is profit maximisation
    • This often causes the private sector to be more efficient than the public sector with higher levels of productivity

• Most firms In the private sector exist to make a profit, even if their goal is not profit maximisation
  • If they do not make a profit then they are likely to go out of business
• Exceptions to this are not-for-profit organisations which also operate in the private sector
  • They exist to provide a service or meet a need
  • Many sell goods/services & use the profits they generate to further their objectives, e.g. The British Heart Foundation
  • The government exempts them from paying direct taxes
• All Charities are not-for-profit organisations and are regulated by the UK Charity Commission