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 Form 3 Business Studies: Size and location of a firm lessons

Factors that limit the size of the firm.

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Answer Text:
Factors that limit the size of the firm.
- As we have seen, the size of the firm may be described as small, medium or large.
- Small firms may be unable to expand due to the following limiting factors:
(a) Size of the market for the product produced or provided: A small
market tends to keep a firm small. There is, therefore, a strong relationship between a firm and the size of the market which it serves.
(b) Availability of factors of production: Even if circumstances necessary for the expansion of a given firm were favourable,
without the requisite factors of production, the firm is unlikely to grow to take advantage of the favourable circumstances.
(c) Nature of product produced or provided: Most services such as medical care, hairdressing and legal
practice are more effectively provided on a small scale.
(d) Owner’s decision: Some firm owners, fearing the inconveniences of operating a business on large scale, would prefer the simplicity and uncomplicated
running of the small-scale firms.


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