Small firms and large firms Cambridge IGCSE Economics revision
Not started
Learn it
In plain words
Most firms in any country are small: a corner shop, a hairdresser, a plumber. A few are enormous. Both sizes survive because each has advantages the other lacks.
Not every owner wants to grow, and not every market is big enough to grow in.
5 things to know
- Small firms are flexible, give personal service, make decisions quickly, and are easy for the owner to control. But their unit costs are higher, and they find it harder to borrow.
- Large firms have lower unit costs through economies of scale, can borrow more easily, can afford research, and can spread risk across products. But they can be slow, impersonal and hard to manage.
- Firms want to grow to gain economies of scale, earn more profit, win a bigger market share, spread risk and take over competitors.
- Firms grow internally, by selling more, or externally, by merging with or taking over another firm.
- Firms stay small when the market is small or specialised (a niche), when they cannot raise finance, when customers want a personal service, or when the owner prefers to stay in control.
Tips and tricks
- "Small firms cannot compete" is wrong. They compete on service, convenience and specialisation, not on price.
- A niche market is a small, specialised part of a market, such as handmade wedding cakes. It is too small to attract large firms.
It lands in your notebook with its questions as flashcards.
Small firms and large firms: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is an advantage of a small firm over a large one?
With few people involved, a small firm can respond fast and know its customers.
Which is a reason for a firm to stay small?
There are not enough customers to support a large firm.
A firm grows by opening more of its own shops, paid for from its profits. This is
It is expanding itself, not joining with another firm.
Which is a disadvantage of a large firm?
Messages pass through many layers in a large organisation.
Why might a bank be more willing to lend to a large firm than to a small one?
Less risk for the bank means easier, cheaper borrowing.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Small firms and large firms
Cambridge IGCSE Economics 0455 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State two advantages of being a small firm.[2]
Show answerHide answer
Any two of: flexible and quick to respond to customers, personal service, quick decisions, easy for the owner to control, good relations with staff.
Explain two reasons why a firm may want to grow.[3]
Show answerHide answer
To gain economies of scale, which lower its average costs and can raise its profit. To spread risk by selling more products or in more markets, so it depends less on one.
Explain why a village hairdresser is likely to remain a small business.[3]
Show answerHide answer
The market is small, as there are only so many customers in a village. Hairdressing is a personal service that cannot be mass-produced, so there is little to gain from being large.
Answers: Small firms and large firms
- 1. Any two of: flexible and quick to respond to customers, personal service, quick decisions, easy for the owner to control, good relations with staff.
- 2. To gain economies of scale, which lower its average costs and can raise its profit. To spread risk by selling more products or in more markets, so it depends less on one.
- 3. The market is small, as there are only so many customers in a village. Hairdressing is a personal service that cannot be mass-produced, so there is little to gain from being large.