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Showing posts from February, 2013

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 7 th 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-se

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Topic 08: Size of Firms

Growth of Firms Meaning of firm Reasons for growth and ways to grow Integration and its types Economies of Scale  Meaning Relationship with average cost Types of Economies of Scale (internal and external) Diseconomies of Scale  Meaning Types of Diseconomies of Scale (internal and external) Survival of Small Firms  Measuring Size Reasons for survival

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:  To enjoy economies of scale: As the firm expands, it can reduce its average cost of production.  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.  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 f

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:  To enjoy economies of scale: As the firm expands, it can reduce its average cost of production.  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.  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. 

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.

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.

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.  The number of employees  The value of the capital employed  The value of the output  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: