What factors determine the size of a firm?

Explanation

The factors that determine the size of a firm are:

(i) The market:The size of the market for a firm's product influences its size. If the market is small in terms of effective demand, the operation of the firm is bound to be small.

(ii)Capital: When it is difficult to obtain necessary capital for the formation of a large firm or expansion of existing one, the firm is bound to remain small.

(iii) Entrepreneurial ability: Ability to undertake risk and to manage large scale business is an important factor that determined the size of .a firm. The size of such firm depends on the knowledge and experience needed for planning the operation.

(iv) Technical nature of product/service: Firms providing personal services for customers are usually run as small enterprises, e.g. lawyers, accountants and bankers. Firms producing perishable agricultural goods tend to produce to satisfy only local markets. They there-fore tend to be small scale producers.

(v) Stage of development: Some firms are small because they have just been established. Given some time, they may grow and expand.

(vi) Government policy: When government is ready to assist firms, it helps to determine the size of operation.

(vii) Available technology:This is another key determinant of the size of a firm.