Theme 3
Microeconomics
,3.1 Business Growth
• 3.1.1 Sizes and Types of Firms
• 3.1.2 Business Growth
• 3.1.3 Demergers
,3.1.1 (a) Reasons Why Some Firms
tend to Remain Small and Why
Others Grow
• Avoid diseconomies of scale (stop growing at MES)
• Maintain good internal communication
• Overtrading avoidance
• Operate in a niche market
• Owners are profit satisficers
• The Principal Agent Problem
, 3.1.1 (b) The Significance of The Divorce Between
Ownership and Control: The Principal-Agent Probl
• Happens when the owners don’t run the day-to-day activities of th
business
• Causes the Principal-Agent Problem, where the principal’s (owners
best interests (profit maximisation) aren’t being pursued by the
business because those who run the business (directors / agents) a
pursuing self-interest instead
• Can be overcome by making bonus targets based on profit and hav
at least 3 non-executive directors on the board of directors as well
paying bonuses as shares
Microeconomics
,3.1 Business Growth
• 3.1.1 Sizes and Types of Firms
• 3.1.2 Business Growth
• 3.1.3 Demergers
,3.1.1 (a) Reasons Why Some Firms
tend to Remain Small and Why
Others Grow
• Avoid diseconomies of scale (stop growing at MES)
• Maintain good internal communication
• Overtrading avoidance
• Operate in a niche market
• Owners are profit satisficers
• The Principal Agent Problem
, 3.1.1 (b) The Significance of The Divorce Between
Ownership and Control: The Principal-Agent Probl
• Happens when the owners don’t run the day-to-day activities of th
business
• Causes the Principal-Agent Problem, where the principal’s (owners
best interests (profit maximisation) aren’t being pursued by the
business because those who run the business (directors / agents) a
pursuing self-interest instead
• Can be overcome by making bonus targets based on profit and hav
at least 3 non-executive directors on the board of directors as well
paying bonuses as shares
