Small Firms (Cambridge (CIE) O Level Economics)

• They offer a more personalised service and focus on building relationships with their customers 
  

• Small firms are often unable to access finance for expansion
  

• They provide a product that is in a niche market - smaller market size but can be very profitable
  

Mass markets

Diseconomies of scale

The firms' objective

• Many small firms operate in mass markets with low barriers to entry
  

• Rapid growth can cause diseconomies of scale which can be difficult to deal with and so many owners choose to avoid these
  

• Owners goal is not profit maximisation but rather an acceptable quality of life (satisficing)
  

• They often provide highly customised goods/services e.g. pet grooming in the customer's home

• They often create personal relationships with their customers which helps to generate customer loyalty and word-of-mouth advertising

• They often provide very unique products which are sold in small quantities at high prices - this can be very profitable

• Smaller firms can respond quickly to changing market conditions

• More susceptible to changes in the wider economy than large firms, especially during recessions

• Less financial resources available to them, including access to larger bank loans - some smaller firms are unable to access any loans at all

• It is harder to recruit/retain staff as the wage and non-wage benefits are less competitive than those offered by bigger firms

• Owners may struggle to take a holiday/sick leave as revenue slows/stops coming in when they stop working

• Small firms struggle to generate economies of scale as the volume of output is significantly lower than that of larger firms resulting in lower profit margins