Question

Discuss the factors that influence the number of facilities that a firm chooses to operate.

Answer 1

Total cost, type of business, Goals of a firm and incentives are the factors that affect the number of facilities of a firm.

-Cost

-Geographical location

-Competition

-Political Stability

- Rules and regulations

-Environmental conditions

-technology Efficiency

Type of business:

Goal of a firm:

Incentives:

Explanation:

Factors that affect the number of facilities that a firm chooses to operate are:

Cost- it is one of the major factor that determine the number of facilities that a firm chooses to have. If a firm has all the required resources it is well capable of buying any type of facility it requires to run its activities. Similarly , when a firm does not have enough money to buy resources then it is limited to the number of facilities it can choose to operate. Cost determines if the organization is able to operate and maintain a certain facility, for example maintenance cost, storage cost and overhead costs.

-Location- It is another major factor that determines the number of facilities that a firm can have. When the firm location is not accessible it becomes hard for an organization to choose some facilities. For example poor roads or lack of roads may make the firm not to choose logistics facilities. Also, location affects the number of facilities a firm can operate as if it is not near some important operations it makes it difficult to choose certain facilities.

Competition- It is another major factor that determines the number of facilities that a firm choose to own.When the competition level in the market is high a firm may decide not to buy some facilities in order to reduce wastage and obsolescence. Also ,when the rate of competition is high it makes the demand of some facilities to be high, thus reducing the supply. This factor affects the number of facilities that a firm may choose to operate.

Political Stability- When there is political stability a firm feels free to invest in a lot of facilities. But when there is political instability a company can not be able to invest in many facilities due to the fear of unknown.

Rules and regulations- Sometimes the rues and Regulations of a country makes determine the number of facilities that each firm should operate. This comes along with huge amount of tax thus limiting a firm from owning a lot of facilities. Similarly, when there are huge taxation on a certain facility it becomes difficult to invest in other facilities of the same kind.

Environmental Conditions- Also the environmental conditions determines the number of facilities that a firm may choose to operate. When a certain area climate is reliable a firm may choose to invest in more facilities unlike wen the climate is unreliable. Changes in the patterns of weather and seasons affects businesses thus making them to have limited facilities.

Technology- It is another major factor that affects the number of facilities that a firm can choose to have. If a firm does not have the modern technology it becomes difficult to install some facilities in their business.Technology efficiency determines the effectiveness of the firm facilities thus when there is no modern technology for a firm the number of facilities to operate are minimal.For example some machines requires modern technology for them to be used.

Total cost: The higher the number of facilities the higher will be the cost so firm cost is the factor which influences the number of facilities.

Type of business: Different business needs different facilities, so either you have manufacturing or service operation affects the number of facilities.

Goal of a firm: The number of facility is also affected by the goals of a firm in the short run and long run, the higher the goal the higher facility is needed, like if firms want to increase its operation, the firm needs to hire more employees for those firm have to increase their facilities like more space, chairs, cabins and vehicles.

Incentives: It is the benefits a company receives by operating, if the company gets higher incentive by operating at larger scale then company increases its facilities.