Eoc 201, Slp 4

EOC 201

Microeconomics

Module 4 SLP

Abstract

The firm’s primary objective in producing outputs is to maximize profits. The production of

output, however, involves certain costs that produce the profits a firm can make. The relationship

between costs and profits is therefore critical to the firms determination of how output to

produce.

Profits and Your Franchise Firm

1. How do firms benefit from economies of scale?

Economics of scale are the cost advantages that a business obtains due to expansions.

They are factors that cause a producer’s average cost per unit to fall as output rise.

Economics of a scale may be utilized by any size firm expanding its scale operation.

A company reaches these by expanding its operations and scales.

2. What might be some potential disadvantages of being part of a large corporation?

The management of the company no longer act as it would before when the company

was small. Large decisions have to be approved by the board of directors as well as

the shareholders of the company. This can make it more time consuming to make

large decisions and the management loses some control. When a company goes large,

It has to hire an investment bank to handle the initial public offering, The company

has to pay filings fees with the United States Securities and Exchange Commission

and pay the investment bank. Lawyers must be involved as well to make sure that all

of the paperwork is handle correctly. The cost for this process is usually greater

$100,000 and for larger management/companies, the cost is generally much more

than that. In becoming a large company, the management could be replaced at

anytime. If a large investor or group of investors decide they want to take over...