Negotiating power than smaller firms and can

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negotiating power than smaller firms and can negotiate for discounts for bulk purchases of inputs. [Link] The lower price that large firms pay for inputs will allow them to have a lower average cost of production.
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(a) Explain the benefits that a firm enjoys when it grows in size. [10] Suggested Body: Firms can enjoy cost savings when they grow large through exploiting internal economies of scale. [Point 2] Another source of EOS that firms can enjoy comes from financial EOS . [Elaboration and example] Larger firms are often considered more credit-worthy than smaller firms and are able to enjoy lower interest rates on loans. Larger firms such as a pharmaceutical firm will often have more physical assets that they are able to offer as collateral in negotiating for a loan compared to smaller firms like interior design firms. Larger firms also earn greater amounts of revenue and have more stable revenue streams and thus are considered to be more likely to be able to repay the loan. [Link] Since large firms are considered more credit-worthy, banks are willing to offer lower interest rates for loans to large firms since the risk of defaulting on the loan is lower. Large firms are thus able to borrow at cheaper rates whether to purchase capital goods, inputs or
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(a) Explain the benefits that a firm enjoys when it grows in size. [10] Suggested Point 3: [Point] Firms can enjoy revenue advantages when they grow large through expansion into different markets . [Elaboration and example] For example, Unilever’s expanded from food and beverage products like ice cream and tea, into different product markets such as home and personal care products like laundry detergent. By being able to expand into different markets, Unilever’s revenue stream can be more stable in the face of changes. If the demand for a particular good falls, it can be mitigated by changes in demand for other goods. [Link] This allows the firm’s AR and MR to increase and remain stable, allowing the firm to enjoy revenue advantages, and possibly maintaining their profits, assuming that costs are largely unchanged.
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(a) Explain the benefits that a firm enjoys when it grows in size. [10] Suggested Point 4: [Point] Firms can enjoy more market share when they grow large and thus can have greater market power. [Elaboration and example] Firms that grow larger and take up a larger part of the market can better establish barriers to entry in the form of limit pricing / predatory pricing. When a firm has sufficient market power, they are able to influence the market through increasing the price or decreasing their output. Large firms can then use limit pricing / predatory pricing to prevent the entry of other firms into the market. This prevents competitors for entering the market and taking away demand from the incumbent large firm thus ensuring that the revenue earned will continue to be high in the long run.
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(a) Explain the benefits that a firm enjoys when it grows in size. [10] Suggested Point 4: [Point] Firms can enjoy more market share when they grow large and thus can have greater market power.
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