Inflation: A Reason for the Birth of Class Struggle in Maldives

Source: Department of National Planning

Inflation refers to a persistent rise in the general price level. Inflation in the Maldives is measured by the Consumer Price Index (CPI). The CPI shows a weighted average of the prices of a general ‘basket’ of goods and services purchased by consumers. Each product in the index is weighted according to its relative importance (price relative) in the total consumer expenditure.

Department of National Planning has reported on Monday (February 25, 2013) that the island country depending on foreign imports has experienced an Annual CPI of 4.33 per cent for the last year (from January 2012 to January 2013). Despite the arguments put forth against rising price level by the then opposition in January 2012 to continue strike until the previous government was toppled on 7th February 2012, ordinary Maldivians are adversely affected in the post coup 12 months.

Cost of Education rose by 22.84% over the year
The worst hit area is ‘Post-secondary non-tertiary education’ (+22.84%) which laid a huge burden on the poor self-financed students residing in Capital Male for their higher education as higher education is highly centralized to the Capital. These students are forced to spend their family income for rent and food in the world’s most densely populated capital city, leaving their siblings in the rural islands fighting for their daily bread.

Prices of goods and services related to Pre-primary and primary education increased by 10.40% reducing the affordability for the low income islanders who mainly depend on fisheries for living.

Pensioners are worst hit due to soaring inflation
These soaring prices of goods and services related to Pre-primary, Primary and Post Secondary education has changed the living of the fixed income groups into miseries. The purchasing power of the pensioners and the old who depend on the monthly state pension of MVR 2000 is now exposed to vulnerability due to the rise in education cost accompanied with the 6.65% rise in the prices of games and toys that they buy for their grad children.

On the other hand, the richest 100 people who control the whole economy have enjoyed a significant rise in their income as they directly increased the prices of the goods and services before the present paralyzed government. This has increased the income gap between the rich and the poor giving birth to a new form of class struggle. 

Source: Department of National Planning Inflation refers to a persistent rise in the general price level. Inflation in the Maldives is...

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Topic 08: Size of Firms

Growth of Firms


Survival of Small Firms 

Growth of Firms Meaning of firm Reasons for growth and ways to grow Integration and its types Economies of Scale  Meaning Relation...

Growth of Firms

What is a firm? 
A firm is a unit of management trading under a particular name. It is a decision making production unit. An industry is made up of all those firms producing the same commodity. 

Why do firms grow? 
Firms try to grow in size for several reasons: 
  1. To enjoy economies of scale: As the firm expands, it can reduce its average cost of production. 
  2. To obtain a larger market share: A larger firm can exercise more control over price and output in the market. Large firms can also enjoy monopoly power. 
  3. To achieve greater security: Firms can achieve greater security by extending the market for their products and producing a wide range of goods. (It is known as ‘Diversification’.) So that they can face the fluctuations in demand and seasonal variations. 

How do firms grow? 
Firms grow through diversification and integration. Diversification refers to the extension of the product range and its markets. 

What is integration? 
Integration refers to joining together of two or more firms. There are three types of integration. 

1. Vertical integration: 
It refers to joining together of two or more firms in different stages of production. 
  1. Vertical integration backwards occurs when a firm merges with its suppliers. For example; a tea factory takes over tea plantation. 
  2. Vertical integration forwards occurs when a firm merges with its market outlets. For example; a petrol company takes over a number of petrol stations (ie. Retailers) 
2. Horizontal integration: 
It refers to joining together of two or more firms producing similar goods. For example; integration of two or more motor car companies. 

3. Conglomerates (Lateral integration): 
It refers to joining together of two or more firms producing entirely different products. For example; a sugar manufacturer takes over a motor car company.

What is a firm?  A firm is a unit of management trading under a particular name. It is a decision making production unit. An industry is mad...

Growth of Firms

What is a firm? 
A firm is a unit of management trading under a particular name. It is a decision making production unit. An industry is made up of all those firms producing the same commodity. 

Why do firms grow? 
Firms try to grow in size for several reasons: 
  1. To enjoy economies of scale: As the firm expands, it can reduce its average cost of production. 
  2. To obtain a larger market share: A larger firm can exercise more control over price and output in the market. Large firms can also enjoy monopoly power. 
  3. To achieve greater security: Firms can achieve greater security by extending the market for their products and producing a wide range of goods. (It is known as ‘Diversification’.) So that they can face the fluctuations in demand and seasonal variations. 

What is a firm?  A firm is a unit of management trading under a particular name. It is a decision making production unit. An industry i...

Economies of Scale

Economies of Scale 
Economies of scale refers to the fall in long run average cost of the firm due to expansion of its scale of production. 

This is concerned with monetary or economic benefits enjoyed by a firm when it expands. Firms enjoy economies of scale when the output increases more than the percentage increase in inputs (This is also called increasing return to scale). For example; a firm increases its inputs by 10% and the output by 15%. 

Economies of Scale and Average Cost 
Average cost refers to cost per unit of output. It can be calculated by dividing the total cost by output. The table opposite makes it clear.

Economies of Scale  Economies of scale refers to the fall in long run average cost of the firm due to expansion of its scale of product...

Diseconomies of Scale

Diseconomies of Scale
This is just opposite to economies of scale. Actually economies of scale cannot continue to exist for a long period of time. After optimum level too much of expansion will create diseconomies of scale. We say a firm is experiencing diseconomies of scale when:
  • the long run average cost of the firm is increasing
  • the percentage increase in input is higher than the percentage increase in output.
Diseconomies of scale arises when the expansion of the firm leads to a rise in long run average cost.

Types of Diseconomies of Scale
Types of diseconomies of scale are set out below.

Diseconomies of Scale This is just opposite to economies of scale. Actually economies of scale cannot continue to exist for a long peri...

Survival of Small Firms

How do we measure the size of firms? 
The size of the firm is measured on the basis of the following criteria. 
  1. The number of employees 
  2. The value of the capital employed 
  3. The value of the output 
  4. The market share etc 

Reasons for the survival of small firms 

1. Size of the market 
Small firms do well if the market for the product is relatively small. The reasons that keep a market small in size are: 

How do we measure the size of firms?  The size of the firm is measured on the basis of the following criteria.  The number of empl...