Abby & Tilly Micro Essay Plans
3.1.1 SIZE AND TYPE OF FIRM
The main factor which constrains the growth of small businesses is limited access to
finance. To what extent do you agree with this statement?
Definitions
● Finance – money used for further investment in the business
● Satisficing - when business owners make enough profit to satisfy shareholders they
pursue other business objectives
K = Yes, small so seen as a high risk business therefore limited finance
A = small firms perceived as higher risk due to lower value of assets → less collateral for banks
→ banking sector less willing to lend
Ev = Difficult to assess whether access to finance is the most important constraint
= this will be a bigger issues for developing countries with fragmented financial markets or in
times of recession due to high interest rates
K = No, Business objectives e.g satisficing limits growth
A = owners/managers may be satisfied with keeping the business small → opportunity cost of
growth is too large → growth is risky, expensive, time-consuming → business may be in a
niche market → lack of managerial skills → satisficing behaviour → limiting growth
A = if firms are in a niche market they could grow through inorganic conglomerate integration →
risk bearing economies of scale → fall in LRATC → fall in costs and increase in growth and
profit
= shareholder and owner tend to want to revenue maximise therefore may be reluctant to profit
satisfice and so will want to grow business if the opportunity cost is small
K = No, size and composition of market limits growth
A = high barriers to entry → technical and pricing barriers → lack of scope for growth →
monopolies have large economies of scale → small firms can’t compete (predatory pricing) →
inability to grow
Ev = Government policy towards small businesses may play a vital role in promoting small
businesses e.g financial benefits, tax concessions, help & advice, pressure on banking sector to
encourage small business growth
1
,Abby & Tilly Micro Essay Plans
To what extent are the objectives of public sector organisations different to those of
organisations in the private sector?
Definitions
● Private - firms owned by individuals; for profit (companies) and not for profit (charities)
● Public - firms owned by gov, includes gov departments (health, education, defence)
K = They are different, public sector looks to meets people’s needs and improve welfare
A = e.g. healthcare, defense, education, housing - NHS, council houses, state schools
A = government wants to raise living standards → provides merit (healthcare) and public goods
(streetlights) → solve the free rider problem → rise in consumers welfare → increase in
consumption of positive externalities → raising economic growth
Ev = Commercially-based public sector organisations often have a profit objective much the
same as in the private sector. May be a question of the extent to which profit is an absolute
requirement for survival and/or growth
K = Different, prime objective of most private sector
organisations is to make a profit
A = profit maximising → objective of shareholder → more profit →
MC = MR → higher income and profits can be reinvested into
capital to increase firm's productive potential and SRAS
Ev = Some private sector organisations are non-profit making,
others may prioritise social factors e.g. co-operatives
= There may be similarities between the public and private sector
in the short run as they may sustain losses
K = The are different, private sector directors usually want to revenue maximise
A = private sector owned by individuals → directors objectives =
maximise sales → higher sales bonus → maximise revenue →
increase company size and market power → more prestige
Ev = private sector may be more geared towards being efficient in
order to achieve objectives whereas public sector more likely to
have greater emphasis on social objectives
2
,Abby & Tilly Micro Essay Plans
Discuss the extent to which a divorce of ownership from control might influence the
objectives of private sector organisations.
Definitions:
● Private sector : non-gov owned business organisation, including profit & non-profit.
● Divorce: where a firm is owned by shareholders but controlled by the firm’s managers.
● PAP: conflict between “ownership & control” → managers may wish to “satisfice” whilst
owners will want to maximise profits.
K = Shareholders objectives.
A = desire profit maximisation → through risk taking → in hope
of returns in form of dividend payments & rising share price →
however have no day-to-day (passive) control over managers
so cannot D risk
A = profit maximising (MC = MR) (P = R-C)
Ev =
● Shareholders often passive for companies with no
day-to-day control over managers, → big investors often large institutional shareholders,
eg. pension funds & insurance companies → therefore not influence objectives greatly
● No automatic link between different objectives and
separation of ownership from control.
● Shareholders may also prefer to see short term company growth rather than short term
profit gains → meaning objectives aline with managers
K = Managers objectives.
A = Satisficing → managers often intent on growth, have different
objectives = power, bonuses, prestige, sales maximising → not long
term profit through great risk that may jeopardise their employment
→ instead ↑market share
A = Sales maximisation (where ATC meets AR) = normal profit, not
profit maximising like owners instead potentially ↑market share
Ev =
● LR usually all parties seek profit maximising as in order to
achieve pay↑ - as long as the pay is set by bonuses linked to
profits - have to please active shareholders who will block
bonuses if not profit maximising
● Directors and senior managers may be major shareholders so not necessarily a divorce
between the two
● Private sector includes 'co-operatives' so all profit satisficing, or non-profit organisations
where neither likely to seek high profit levels instead social objectives
3.1.2 BUSINESS GROWTH
3
, Abby & Tilly Micro Essay Plans
The benefits of growth to business are so great that no business should aim to remain
small. Explain and critically examine this statement
K = economies of scale
A = if firms grow → more economies of scale → e.g marketing economies will be able to bulk
buy → decrease in costs → rise in profits benefiting the firm → supernormal profit → more
dynamically efficient → share price rise
Ev = firms may want to stay small to avoid DEOS → rise in LRAC → increase in costs → fall in
profits especially in industries with low MES
= firms may not have access to finance to grow
K = risk diversification
A = if business grows → can diversify → enjoy risk bearing economies of scale → decrease risk
of failure → decrease costs of expanding → rise in profits
Ev = firms may want to stay small to take advantage of niche market and price inelastic/income
inelastic demand
= may want to maintain high level of flexibility / innovation
K = increased market share
A = if a business grows → more market share → more control of market → more price making
power → raise prices → maximizes profits → more monopsony power over suppliers →
decrease costs → further increase profits → good for firm
Ev = firms may want to stay small to avoid attention from regulators or take over bids
= behavioural motives - family firms wish to maintain control avoid divorce of ownership and
control
4
3.1.1 SIZE AND TYPE OF FIRM
The main factor which constrains the growth of small businesses is limited access to
finance. To what extent do you agree with this statement?
Definitions
● Finance – money used for further investment in the business
● Satisficing - when business owners make enough profit to satisfy shareholders they
pursue other business objectives
K = Yes, small so seen as a high risk business therefore limited finance
A = small firms perceived as higher risk due to lower value of assets → less collateral for banks
→ banking sector less willing to lend
Ev = Difficult to assess whether access to finance is the most important constraint
= this will be a bigger issues for developing countries with fragmented financial markets or in
times of recession due to high interest rates
K = No, Business objectives e.g satisficing limits growth
A = owners/managers may be satisfied with keeping the business small → opportunity cost of
growth is too large → growth is risky, expensive, time-consuming → business may be in a
niche market → lack of managerial skills → satisficing behaviour → limiting growth
A = if firms are in a niche market they could grow through inorganic conglomerate integration →
risk bearing economies of scale → fall in LRATC → fall in costs and increase in growth and
profit
= shareholder and owner tend to want to revenue maximise therefore may be reluctant to profit
satisfice and so will want to grow business if the opportunity cost is small
K = No, size and composition of market limits growth
A = high barriers to entry → technical and pricing barriers → lack of scope for growth →
monopolies have large economies of scale → small firms can’t compete (predatory pricing) →
inability to grow
Ev = Government policy towards small businesses may play a vital role in promoting small
businesses e.g financial benefits, tax concessions, help & advice, pressure on banking sector to
encourage small business growth
1
,Abby & Tilly Micro Essay Plans
To what extent are the objectives of public sector organisations different to those of
organisations in the private sector?
Definitions
● Private - firms owned by individuals; for profit (companies) and not for profit (charities)
● Public - firms owned by gov, includes gov departments (health, education, defence)
K = They are different, public sector looks to meets people’s needs and improve welfare
A = e.g. healthcare, defense, education, housing - NHS, council houses, state schools
A = government wants to raise living standards → provides merit (healthcare) and public goods
(streetlights) → solve the free rider problem → rise in consumers welfare → increase in
consumption of positive externalities → raising economic growth
Ev = Commercially-based public sector organisations often have a profit objective much the
same as in the private sector. May be a question of the extent to which profit is an absolute
requirement for survival and/or growth
K = Different, prime objective of most private sector
organisations is to make a profit
A = profit maximising → objective of shareholder → more profit →
MC = MR → higher income and profits can be reinvested into
capital to increase firm's productive potential and SRAS
Ev = Some private sector organisations are non-profit making,
others may prioritise social factors e.g. co-operatives
= There may be similarities between the public and private sector
in the short run as they may sustain losses
K = The are different, private sector directors usually want to revenue maximise
A = private sector owned by individuals → directors objectives =
maximise sales → higher sales bonus → maximise revenue →
increase company size and market power → more prestige
Ev = private sector may be more geared towards being efficient in
order to achieve objectives whereas public sector more likely to
have greater emphasis on social objectives
2
,Abby & Tilly Micro Essay Plans
Discuss the extent to which a divorce of ownership from control might influence the
objectives of private sector organisations.
Definitions:
● Private sector : non-gov owned business organisation, including profit & non-profit.
● Divorce: where a firm is owned by shareholders but controlled by the firm’s managers.
● PAP: conflict between “ownership & control” → managers may wish to “satisfice” whilst
owners will want to maximise profits.
K = Shareholders objectives.
A = desire profit maximisation → through risk taking → in hope
of returns in form of dividend payments & rising share price →
however have no day-to-day (passive) control over managers
so cannot D risk
A = profit maximising (MC = MR) (P = R-C)
Ev =
● Shareholders often passive for companies with no
day-to-day control over managers, → big investors often large institutional shareholders,
eg. pension funds & insurance companies → therefore not influence objectives greatly
● No automatic link between different objectives and
separation of ownership from control.
● Shareholders may also prefer to see short term company growth rather than short term
profit gains → meaning objectives aline with managers
K = Managers objectives.
A = Satisficing → managers often intent on growth, have different
objectives = power, bonuses, prestige, sales maximising → not long
term profit through great risk that may jeopardise their employment
→ instead ↑market share
A = Sales maximisation (where ATC meets AR) = normal profit, not
profit maximising like owners instead potentially ↑market share
Ev =
● LR usually all parties seek profit maximising as in order to
achieve pay↑ - as long as the pay is set by bonuses linked to
profits - have to please active shareholders who will block
bonuses if not profit maximising
● Directors and senior managers may be major shareholders so not necessarily a divorce
between the two
● Private sector includes 'co-operatives' so all profit satisficing, or non-profit organisations
where neither likely to seek high profit levels instead social objectives
3.1.2 BUSINESS GROWTH
3
, Abby & Tilly Micro Essay Plans
The benefits of growth to business are so great that no business should aim to remain
small. Explain and critically examine this statement
K = economies of scale
A = if firms grow → more economies of scale → e.g marketing economies will be able to bulk
buy → decrease in costs → rise in profits benefiting the firm → supernormal profit → more
dynamically efficient → share price rise
Ev = firms may want to stay small to avoid DEOS → rise in LRAC → increase in costs → fall in
profits especially in industries with low MES
= firms may not have access to finance to grow
K = risk diversification
A = if business grows → can diversify → enjoy risk bearing economies of scale → decrease risk
of failure → decrease costs of expanding → rise in profits
Ev = firms may want to stay small to take advantage of niche market and price inelastic/income
inelastic demand
= may want to maintain high level of flexibility / innovation
K = increased market share
A = if a business grows → more market share → more control of market → more price making
power → raise prices → maximizes profits → more monopsony power over suppliers →
decrease costs → further increase profits → good for firm
Ev = firms may want to stay small to avoid attention from regulators or take over bids
= behavioural motives - family firms wish to maintain control avoid divorce of ownership and
control
4
