Question

What are factors that justify the existence of small scale firms in an economy?

Answer 1

Factors that justify the existence of small scale firms in an economy are;

• Small capital. some businesses remain small because of limitations of investment funds.
• Where the market served is small. The market demand in a particular industry could be too small that it cannot accommodate large scale firms.
• If the government demands so. The law may restrict the growth of firms.
• Products that are designed to meet customer specification. There are services that require personal attention entrepreneurs that invest in such firms are compelled to operate them in small scale.
• Desire to retain control by the owner. There are entrepreneurs that start firms and leave them to remain small for fear of loss of control and independence in management if the firm becomes large scale.
• Rising costs of production. Some firms that would want to remain small because of fear of increasing cost of production with increase in its level of production.
• Risk of large scale enterprises. There are huge risks that face large scale enterprises despite the many benefits that accrue to it. To avoid such risks, firms may opt to remain small scale.
• Expensive goods. Firms that are engaged in the production and sale of expensive and sell specialized goods are of small scale because the products they are dealing with are too expensive to call for mass production.
• Quick decision making. In cases where the proprietors want to avoid delay in decision making, they may opt to maintain a small business as it may require less consultations.
• Simplicity of small firms. To avoid bureaucracy and complexities associated with large scale firms, a proprietor may want to remain small scale.