Major economic decisions of a firm.
A firm has got major economic decisions to make in the shortrun and longrun on the following;
- What shall be the size of the firm or plant.
- Whether to enter an industry of a particular type or not.
- What types of goods and services to produce, in a situation where there is wide range of goods and services that can be produced i.e what to produce.
- What methods or techniques of production, shall the firm employ labour intensive or capital intensive or intermediate technology (How to produce).
- How much shall be charged per unit of the firm's output?
- How much to produce of each output.
- How much of each input of the factors of production should a firm employ.
- How much shall be spent on each type of inputs.
- Where the firm shall be located i.e where to produce.
- For who to produce and how much of each output should be produced.
- How shall the proceeds ( profits) be divided against the various inputs.
- Factors influencing the firm's decisions.
- The level of profit maximization; this will affect the firm's price, size, production techniques etc..
- External economic environment such as government policy, etc..
- Prices and availability of factor inputs e.g raw materials, labour, capital etc.
- The firm's goal in the longrun e.g longrun profit maximisation.
- Characteristics of the market in which the firm operates.
- Nature of products the firm produces or intends to produce e.g perishable, bulky etc..
- The firm's market share and the level of competition in the market.
- The degree of freedom of entry and exit of other firms in the industry.