Question

1. Describe some conditions that might cause larger firms to experience inefficiencies that small firms would not experience.

2. Why would different industries have different degrees of economies or diseconomies of scale?

3. Which of the three types of government policies— antitrust, social regulation, or economic regulation— is the basis for each of the following? Who benefits from the policy?

a. beautician education standards
b. certified public accounting requirements
c. liquor licensing
d. Justice Department guidelines
e. the Clean Air Act
f. the Nutrition and Labeling Act

Answer 1

1. Generally large firms in service sector experience inefficiencies that small firms do not experience. Examples include Hotel industry, Barbers, Tailors, Doctors, Lawers, Chartered accountants, etc., the so called professionals and self employed category, small firms cater to the needs of individual customers considering personal taste of their clients or customers with a personal touch. This advantage is not there for large firms.

2. A firm's efficiency is affected by its size. Large firms are often more efficient than small ones because they can gain from economies of scale, but firms can become too large and suffer from diseconomies of scale. As a firm expands its scale of operations, it is said to move into its long run.

3. a. beautician education standards - Social Regulation

    b. Certified public accounting requirements - Economic Regulation

    c. liquor licensing -social regulation

    d. Justice Deparment guidelines - anti trust regulation

    e. the clean air act - social regulation

    f. the nutrition and labeling act - social regulation