Summary and Exam Tips for Growth and Survival of Firms
Growth and survival of firms is a subtopic of The price system and the microeconomy (A level), which falls under the subject Economics in the Cambridge International A Levels curriculum.
The majority of firms globally are small, especially in service sectors, due to their ability to cater to niche markets and provide personalized services. These small firms often face growth challenges like limited capital access and economic downturns but benefit from government support and technological advancements. Large firms, particularly multinationals, grow to enhance profitability through economies of scale, market share expansion, and diversification. Growth can be internal, by reinvesting profits, or external, through mergers and acquisitions. Integration methods include horizontal, vertical, and conglomerate, each with distinct benefits and challenges. Cartels, like OPEC, aim to limit competition but face threats from technological advancements and legal barriers. The principal-agent problem arises when decision-makers (agents) act in their interest rather than the owners' (principals), leading to potential resource misallocation.
Exam Tips
- Understand Firm Sizes: Know why firms vary in size, focusing on niche markets and economies of scale.
- Growth Strategies: Differentiate between internal and external growth, and understand integration types (horizontal, vertical, conglomerate).
- Cartels: Be able to define a cartel and discuss its effectiveness and challenges, using OPEC as an example.
- Principal-Agent Problem: Grasp the concept of asymmetric information and how it affects decision-making in firms.
- Practice Questions: Use exam-style questions to test your understanding of these concepts, focusing on real-world examples.
