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Topic: Microeconomic Decision Makers Sub Topic: Firms: 5/may/2020 Prepared by Mr. Jude Kakuba

1. The document discusses the classification of firms according to their stage of production, ownership, and size. It defines a firm and industry and gives examples. 2. Firms are classified into primary, secondary, and tertiary sectors according to their stage of production. They are also classified into private and public sectors based on ownership. Size is measured by number of employees, output value, and capital employed. 3. The document also discusses factors influencing firm size and causes of firm growth through internal expansion and external mergers or takeovers. It provides examples to illustrate vertical, horizontal, and conglomerate mergers.

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46 views9 pages

Topic: Microeconomic Decision Makers Sub Topic: Firms: 5/may/2020 Prepared by Mr. Jude Kakuba

1. The document discusses the classification of firms according to their stage of production, ownership, and size. It defines a firm and industry and gives examples. 2. Firms are classified into primary, secondary, and tertiary sectors according to their stage of production. They are also classified into private and public sectors based on ownership. Size is measured by number of employees, output value, and capital employed. 3. The document also discusses factors influencing firm size and causes of firm growth through internal expansion and external mergers or takeovers. It provides examples to illustrate vertical, horizontal, and conglomerate mergers.

Uploaded by

amal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Topic: Microeconomic

decision makers

Sub topic: Firms


5/May/2020
Prepared By Mr. Jude Kakuba
Classification of Firms.

A Firm is any business that hires factors of production to produce goods and sevices.
An industry is a group of firms producing the same type of product.
Pepsi and Coca cola are firms that produce soft drinks. Together they are part of the soft drinks
industry.

Firms are classified according to three major ways:


1. Stages of production
2. Ownership
3. Size
Classification 1: Stages of production

 A) The primary sector includes industries involved in the extraction and collection or raw materials. For
example: Tullow oil carries out projects around the world to discover mineral oil deposits fit for extraction.
 B) Secondary sector includes industries involved with the processing of raw materials into semi-finished
and finished goods. It covers manufacturing and construction. For example: Riham company processes fruits
to make juice for sale.
 C) Tertiary sector includes industries producing services to enable consumption, transfer and storage of
products. Industries under this sector include banking, insurance, tourism among others.
 D) Quaternary sector is considered as the fourth sector in some economies. However, it is a sub-section of
the tertiary sector. It includes industries which are involved in the collection, processing and transmission of
information – essentially Information technology.
Classification 2 and 3:

Classification 2: Ownership
In a market economic system, most firms are in the private sector, whereas in a planned economic system.

Classification 3: The size of firms


The three main measures of the size of a firm are:
a) Number of workers
b) The value of output it produces
c) The value of financial capital it employs
Homework:
Task:
Explain four factors that influence the size of a particular firm.

Instructions:
The work should written in Microsoft Teams Notebook – in the section of Homework.
A relevant example should be given for each factor.
Due: Wednesday 6/May/2020 at 5:00 p.m.
Why are most firms small?

1. The small size of the market. For example: demand for very expensive items such as
luxury cars may be limited.
2. Preference of consumers. For some personal services such as hair dressing, consumers
prefer small firms to maintain a closer relationship.
3. Owner’s preference. The owner of the firm may not want it to grow for fear of the
bureaucracy and stress of running a large firm.
4. Flexibility. Small firms may be more capable to adjust to market changes more quickly.
5. Technical factors. The need for little or no capital needed for smaller firms to start up in
some industries encourages entrepreneurs to run business on a small scale.
Why are most firms small?

6. Lack of financial capital. Some firms may remain small because they lack the financial
power to expand their operation.
7. Location: If a product is relatively heavy in relation to its value, transport costs over long
distances will be high and this would increase the total cost. It will be more financially wise
to supply such products to a near by local market which can be more suitably served by a
small firm.
8. Cooperation between small firms is easier, hence some entrepreneurs enjoy this simplicity
in operation. For example, small scale farmers may easily join to buy seeds.
9. Specialisation: small firms may be in a better position to supply specialist product such as
training services (such as accounting) to a larger firm (such as Coca cola company).
10. Government support. Governments usually provide financial support to smaller firms
since they employ a large number of people.
Causes of the growth of firms:
Firms grow in two ways.

1. Internal or Organic growth: 2. External Growth through a


This happens as a result of the firm increasing the Merger or takeover.
market for its current products or diversifying into
A Merger refers to a situation where two or
other products.
more firms join together to form one new firm.
Example: KFC has expanded its operations by
The three types of merger include:
venturing into markets such as Africa and opening
several outlets in countries such as Uganda. a) Vertical
b) Horizontal
c) Conglomerate
A clothing retailer
Types of Mergers: e.g: A fashion shop at
Acacia mall
1. Vertical Merger :
This occurs when a firm merges
with another firm involved with
the production of the same
A clothing manufacturer e.g: Zega
product but at a different stage of Apparel, merges with….
production. It might be in the
form of vertical merger
backwards or vertical merger
forward.

A zip and button


factory

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