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CONCEPTS ABOUT THE SIZE OF FIRM






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Forces of risks and fluctuations of Factors determining optimum size

Risks and uncertainties are part and parcel of business activities. Business firms face fluctuations in demand of their products and accordingly adjust their policies and strategies in order to remain in the market.

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Marketing forces of Factors determining optimum size

The optimum size in respect of marketing operations is attained by a firm through the conduct of its marketing operations on sufficiently large scale consistent with production capacity and sales potential. According to Robinsom, marketing forces are concerned with both buying and selling.

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Financial forces of Factors determining optimum size

The stability and growth of the firms depend to a large extent on their ability to procure capital required for the conduct of their business. Firms having no assured access to financial facilities are unable to expand and may even find it difficult to say in business.

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Managerial forces of Factors determining optimum size

Economies in the sphere of management accrue with the increase in the size of the firm. Optimum managerial unit is also the result of the economies of division of labour and integration of processes in the managerial functions.

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Integration of Processes of of Technical forces

A large sized firm ca achieve economies by the integration of processes. Integration of processes. Integration of processes involves designing a large machine to take over what was previously done by a series of manual or less mechanical operations.

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Division of Labour of Technical forces

A large scale firm can reap great advantages of specialisation and division of labour. Through division of labour, the manufacturing process maybe split into small operations which can betaken over by machines specially designed for the purpose.

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Technical forces of factors determining optimum size

According to Robinson, technical forces fix a minimum scale of operations. They do not fix maximum scale beyond which growth will lead to progressively increasing average cost per unit. ` ` It other considerations require a scale larger than the technical optimum, the technical scale of production can be increased by mere multiplication, until it coincides with that scale which those other considerations would demand''.

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Factors determining optimum size

E.A.G. Robinson has divided the factors or forces which determine the optimum size of a firm into the following five categories.

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Passimum firm

Which a firm expands towards the optimum size, the organisation and coordination of operations tend to become more complicated. Singular management is replaced by group management and local market is replaced by the national market.

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Criticism of Optimum firm

The concept of optimum size has been criticizes on t following grounds

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Assumptions of Optimum firm

The concept of optimum size is based on the following assumptions

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Implications of Robinson's Definition

An analysis of the concept of optimum firm shows that it has the following implications

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Optimum firm

A business unit may be launched n a small scale and then expanded gradually. With the increase in the scale of operation, it can enjoy various economies in regard to prosecution, marketing, financing and management.

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Equilibrium firm

The concept of equilibrium firm was developed by A.C. Pigoy was of the opinion that an equilibrium firm is one which has reached a stage where there is no urge or incentive to expand further.

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Representative firm

Alfred Marshall introduced the concept of representatives firm. A representative firm is a model firm in an industry and it can be used as standard of reference, because it works under average conditions and at average efficiency.

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