What Decides the Size of any Business Concern?
“An entrepreneur should not decide the size of unit arbitrarily. He has to base his decisions on certain economic and non-economic factors. ”
The determination of the size of any business unit necessitates debate over a large number of factors. An entrepreneur should not decide the size of unit arbitrarily. He has to base his decisions on certain economic and non-economic factors.Let’s consider some factors one by one. If the product is durable in nature and can be transported to distant places easily, the production will be possible on the large scale. If the product is of perishable nature and cannot be stored for a longer period, small-scale production is the logical possibility.
Then, a businessman also has to keep in mind the demand for the product under question. If the demand is large, the scale of operations can also be large. On the other hand if demand is only local, the production will tend to be small.
You cannot keep on storing things if you produce in excess of demand. Even if you are the sole producer or have monopoly in your trade, you got to have a deep understanding and go according to the basic laws of demand and supply.
Similarly, if the nature of business is such as to necessitate a large capital, the size of the concern will be huge automatically. This is the case with iron and steel industry, to take an example. If a concern needs small amount of capital, the natural tendency is to keep the unit small.
The law of increasing and decreasing returns also affect the size of a business unit. If the law of increasing the returns is applicable to an enterprise, increase in production will reduce the cost of production. It will be useful to have large-scale operations in such industries.
Whereas, if the law of decreasing returns is applicable to a business, increase in production will mean higher cost of production. It will not be advantageous to increase production beyond a certain limit.
When raw materials are brought from far off places and finished products are also to be carried to distant places, the cost of transport becomes important. The firm will not be able to compete in the market if it sets up a very large plant and starts production on a huge level.
Author - DeeKay
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