FIRMS Grade 9 A

CLASSIFICATION OF FIRMS
Primary
• First stage of production
• Fishing

Secondary
• Second Stage of Production
• Building, clothing and steel.

Tertiary
• Third stage of production
• Banking
DECIDE WHICH SECTOR EACH
INDUSTRY BELONGS TO
Chemicals
Education
Fishing
Retailing
Telecommunication
Transport
 Age of the firm

Amount of money the firm has

This Photo by Unknown Author is licensed under CC BY-NC

Size of the market

 Age of the firm

Amount of money the firm has

This Photo by Unknown Author is licensed under CC BY

Size of the market

 Age of the firm

Amount of money the firm has

This Photo by Unknown Author is licensed under CC BY-SA-NC

Size of the market

SMALL FIRMS
What business do you want to start?

Why?

Factors affecting your decision

CASE STUDY
ABFRL, an Indian MNC, bought Forever 21 for $26 m. They both belong to fashion
industry?

Has ABFRL experienced growth?

If yes, what type?

GROWTH
Internal : The increase in the size of a firm resulting from it enlarging existing plants
or opening new ones.

External : An increase in the size of a firm from it merging or taking over another
firm.
 HORIZONTAL MERGER

This Photo by Unknown Author is licensed under CC BY-SA

VERTICAL MERGER
An ice-cream company merging with a dairy company.
CONGLOMERATE MERGER
Tata motors which manufactures motor vehicles merges with Havells which
manufactures electrical appliances.
CASE
Al Baraka Bank ( Pakistan), a part of Bahrain’s Al Baraka Banking Group, agreed to
merge with Pakistan’s Burj Bank.
Identify two reasons for such a merger.
Explain two advantages gained by bank customers from this merger
LONG RUN PERSPECTIVE
Internal economies of scale: Lower long run average costs resulting from a firm
growing in size.

Internal diseconomies of scale : Higher long-run average costs from a firm growing
too large
FIND THE DIFFERENCE.

This Photo by Unknown Author is licensed under CC BY-SA

This Photo by Unknown Author is licensed under CC BY-SA
RETURNS TO
SCALE

This Photo by Unknown Author is licensed under CC BY-SA-NC

EXTERNAL ECONOMIES
External Economies of Scale
Lower long run average costs resulting from an industry growing in size.

External Diseconomies of Scale

Higher long run average costs arising from an industry growing too large.
WHICH TYPE OF INTERNAL
ECONOMIES EACH OF THE
FOLLOWING MAY BE AN
EXAMPLE OF
1. A book publisher buying a large quantity of paper.

2. A car manufacturer issuing new shares

3. A supermarket chain employing an expert in chocolate to place its orders with

suppliers.
ANALYSE THE INFORMATION, CALCULATE THE
AVERAGE PRODUCT OF LABOUR AND DECIDE THE
MOST EFFICIENT COMBINATION OF WORKERS AND
MACHINES
No of machines No of workers Total Output (units) Output per worker
4 1 10
4 2 24
4 3 45
4 4 72
4 5 100
4 6 108
4 7 112
FACTORS INFLUENCING
DEMAND FOR CAPITAL GOOD
1. Price of capital goods
2. High profits
3. Rate of corporation tax
4. Rising disposable income
5. Interest rates
6. Future expectations of the firm
7. Advances in technology.
CASE STUDY
Rising living standards in China and India are increasing the demand for water,
which in turn is affecting the price of water.
A) Explain how improving living standards would increase the demand for water.
B) Using a demand and supply diagram, explain what is likely to happen to the price
of water in the future.

Explain how workers working from home may affect a firm’s

1) Output
2) Cost of production
DECIDE WHICH OF THE FOLLOWING
INDUSTRIES ARE USUALLY CAPITAL-
INTENSIVE OR LABOUR-INTENSIVE
A) Air travel
B) Fruit picking
c) Hotels
D) Oil Production
E) Telecommunications
PRODUCTION AND
PRODUCTIVITY
Are both the terms the same?
Under what conditions will the production decrease despite rising productivity.