Firms: Types, Mergers & Scale
Microeconomic Decision Makers
Types of Firms
Firms can be classified in several ways. The syllabus expects you to know the two below, by sector of production and by ownership, and a third, by size, which section 2 covers.
By sector of production:
Primary-sector firms extract raw materials from nature (farming, fishing, mining, forestry).
Secondary-sector firms turn raw materials into finished or semi-finished goods (manufacturing, construction).
Tertiary-sector firms provide services (retailing, banking, transport, tourism).
By ownership:
Private-sector firms are owned by private individuals and usually aim to make a profit (sole traders, partnerships, companies).
Public-sector firms are owned and run by the government, often to provide an important service (state-owned utilities, public transport) rather than purely for profit.
Common exam question
Classifying firms by sector
Question: Define a sector with an example, name a sector's products, or explain two ways firms can be classified (2–4 marks).
Asked in 3 of the 11 structured papers. A definition earns a mark for the meaning and one for an example: the secondary sector manufactures, builds or processes raw materials; the tertiary sector provides services. Give one example, not one the question rules out: a scheme may credit only the first. Primary-sector products are raw materials such as fish, wheat or coal (fishing is accepted). To explain two ways firms are classified, name and explain each, a mark each: by stage of production (primary, secondary or tertiary), by ownership (private or public) or by size (output or number of workers).
Common exam question
Private and public sector firms
Question: Explain how the private and public sectors differ, or discuss whether private sector firms charge lower prices than public ones (4–8 marks).
Asked in 2 of the 11 structured papers. For the difference, give each sector's owner and aim, a mark each: private firms belong to individuals or firms and pursue profit; public firms belong to the government and pursue the welfare of society. The 8-mark Discuss weighs private firms' competition and cost cutting against their profit motive or monopoly power, and against public firms' subsidised prices.