Quiz on Firm Growth and Ownership

Why do firms grow?

• To make more money, to gain monopoly power, and for greater security

• To reduce their workforce

• To increase their debt

• To avoid competition

What is one benefit of a firm experiencing economies of scale?

• Increased costs of production

• Decreased costs of production

• Reduced market share

• Increased competition

How can a larger firm influence prices and restrict the ability of other firms to enter the market?

• By reducing their own prices

• By gaining monopoly power

• By increasing their workforce

• By diversifying their products

What is one reason why some firms remain small?

• Access to finance

• To gain monopoly power

• To increase market share

• To experience economies of scale

What is the principal agent problem in large firms?

• Separation of ownership and control

• Lack of competition

• High production costs

• Limited market share

Who owns firms in many large companies?

• Shareholders

• Employees

• Customers

• Suppliers

What is the main aim of the owners of a firm?

• To maximise their own benefits

• To maximise the returns on their investment

• To reduce their workforce

• To increase their debt

What is the main aim of directors and managers in a firm?

• To maximise their own benefits

• To maximise the returns on their investment

• To reduce their workforce

• To increase their debt

What is the principal agent problem?

• When the principal makes decisions on behalf of the agent.

• When the agent makes decisions on behalf of the principal.

• When both the principal and agent make decisions together.

• When neither the principal nor the agent makes decisions.

What is the main temptation for agents in the principal agent problem?

• To maximize the benefits for the principal.

• To maximize their own benefits.

• To minimize the benefits for the principal.

• To minimize their own benefits.