Which concept best explains why large firms affect small business ability to compete.



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Posted on (Answer #1)

Without knowing what the choices are, it is a little difficult to be sure, but the most likely answer to this is “economies of scale.”  Economies of scale are very important in allowing large businesses to out compete small businesses.

Economies of scale are increases in efficiency that come about when a firm operates on a larger and larger scale.  As the firm gets bigger, its size allows it to have lower costs per unit of output.  For example, let us imagine a small farm and a large farm.  The large farm has enough land that the farmer can use the biggest and best tractors, harvesters, and other equipment.  These kinds of equipment allow the large farmer to do things like harvesting each acre of land more quickly.  This reduces labor costs as well as costs for things like fuel.  But only the large farm is able to use this technology.  The small farm is too small to make use of the larger equipment.  This makes the large farm outcompete the small farm.  Thus, economies of scale are the most likely answer to this question. 

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