There are many large firms in most economies, but this does not mean that all small firms will become large.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [4] Up to 2 marks: the ability to raise more finance by selling shares on a stock exchange/to the general public (1). This would enable a firm to finance expansion; this is different to a private limited company which cannot sell shares on a stock exchange (1). Up to 2 marks: some public limited companies are listed on the stock exchange/several stock exchanges around the world (1) and this would enable them to raise funds from a large number of sources/become better known (1). Up to 2 marks: there is no maximum number of shareholders in a public limited company (1); a private limited company is likely to have a lower maximum number of shareholders, which limits the potential for growth (1), necessary to get other shareholders' permission to sell shares in a private limited company (1).
2. [5] 1 mark for definition of capital-intensive and labour-intensive production. Up to 2 marks: labour has become relatively less expensive (1); this could be because of an increase in supply forcing wages down (1). Up to 2 marks: the company could be moving away from mass production (1) towards more specialised production (1). Up to 2 marks: the capital equipment could have become less reliable (1) and, therefore, more expensive to maintain (1). Up to 2 marks: the power of the trade unions could be less than it was in the past (1), making it more difficult for them to have a significant effect on wages (1). Up to 2 marks: disposal of capital equipment (1) due to financial problems (1).
3. [5] Up to 2 marks: vertical integration is the joining of two firms at different stages of production in the same industry (1) e.g. a tea company taking over a tea plantation (1), or forward vertical integration, forwards towards consumers (later stage of production), e.g. a brewery taking over a public house (1). Up to 2 marks: horizontal integration joins together firms at the same stage of production, e.g. two banks (1). Up to 2 marks: conglomerate integration joins together firms in different areas of activity to spread interests and risks over different industries (1), e.g. the Indian company Tata which produces motor vehicles and tea (1).
4. [6] Up to 4 marks for stating that it is likely that the majority of small firms in an economy will remain small: Up to 2 marks: the small size of a market (1) will keep the level of demand low, so that firms will necessarily need to be small (1). Up to 2 marks: small firms can provide components for larger businesses (1), such as in the car industry, where small firms can be more flexible (1). Up to 2 marks: the owners may prefer to run a small firm (1) because they fear they do not have the expertise to run a large firm and do not wish to share decision-making (1). Up to 2 marks: some firms specialise in different forms of personal services (1) and it is much better if this personal attention to detail is dealt with by a small firm (1). Up to 2 marks: it may be difficult for a small firm to raise the necessary funds (1) to finance expansion (1). Up to 2 marks: small firms may receive support by the government (1), firms may be dependent on subsidies etc. (1). Up to 2 marks: to avoid diseconomies of scale (1), wishing to keep average costs of production low/examples (1). Up to 4 marks for stating that it is unlikely that the majority of small firms in an economy will remain small: Up to 2 marks: small firms may benefit from becoming larger (1), such as benefiting from such economies of scale as technical and administrative economies (1). Up to 2 marks: if a small firm grew very large and became a multinational company, it could benefit from lower costs (1) in different parts of the world (1). Up to 2 marks: it might make sense if there was just one firm in a market to avoid wasteful competition and duplication (1), such as with the existence of a natural monopoly (1). Up to 2 marks: the market may be extremely large (1), meaning that a large firm might benefit from marketing economies of scale (1). Up to 2 marks: if there are mergers and acquisitions, this will enable larger firms to be created (1) and smaller firms will then be squeezed out (1). Maximum of 3 marks for a list or list-like response.