Economics » Business Organisations » Factors Determining the Size of Firms

Factors Determining the Size of Firms

Factors Determining the Size of Firms

  1. Entrepreneurial Skill: the most important factor is the skill, initiative and resourcefulness of the entrepreneur. An entrepreneur of outstanding ability will be able to procure as much finance as he may need, hire the requisite labour force, and build up a huge business. The reverse can be said for an entrepreneur without such ability.
  2. Managerial Ability: For running the routine part of the business, managers are usually appointed. If a firm is lucky enough to have a manager of great ability, the size of the firm will grow to considerable dimensions. On the other hand, a mediocre manager will have a small-sized firm to manage.
  3. Availability of Finance: It is finance which oils the wheels of a business machine. If ample funds are available, it will help the entrepreneur to make his business grow. The reverse is the case when finance is not available.
  4. Availability of Labour: Another factor on which the size of the firm depends is the availability of labour of requisite skill. Even with large capital, the entrepreneur cannot do much if there is no labour force to man the business.
  5. Extent of the Market: the size of the firm also depends on the extent of the market. If the commodity which the firm deals in has a wide market, naturally, the business will assume a large scale. But, if the demand for the commodity is limited, the size of the firm will continue to be small.

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