Market structures
By A. Swaby-Burton, Contributor

HELLO GUYS and welcome back. This week we will take some time to look at an essay question before we go on to look at market structures.

* How would you measure the size of a firm? (5 marks)
* What cost advantages might a firm gain when it increases in size? (6 marks)
* What revenue advantages might a firm gain when it increases in size? (6 marks)
* Do you believe that cost or revenue advantages are more important in influencing the size of firms in your country? (8 marks)

Before we start answering this question, let me say that this is a past Advanced Level ­ Cambridge examination question. Now there are a few things that I want you to think of as you start developing the answer for the essay. Firstly, what topic is the question related to? The theory of the firm and it asks you to look at the advantages that the firm experiences as it grows in size and then the question asks you to relate the theory to what you see happening in your country ­ Jamaica.

Now let us start with the first part. There are a number of ways to measure the size of a firm. These include the amount of capital employed, the number of workers, the turnover of stock and the market share that the firm has. Now the question did not ask you for a list, so, for each of these measures you would have to give a brief explanation of what each is. A point to note as well is that no one measure can be solely used as an adequate measure of the size of the firm. It is important that you make this point.

The second part of the question relates to the cost advantages that the firm will experience as it grows. What are some of the ways that the firm can lower its costs at it grows? This question relates to some of the internal economies of scale that the firm may experience. One of the most obvious cost advantage is the ability to purchase goods in bulk. We all know that when you purchase in bulk you are able to buy at lower costs. Secondly, as you grow in size, specialisation can take place and this can lead to a cost benefit as well. Thirdly, as you grow there may be the integration on different sections which may lead to savings in power costs, transportation costs, administrative costs and others. Next, there may be the opportunities for the firm to employ managerial experts who will be able to train personnel or provide guidance for staff in order to help reduce costs and increase revenue. Once again, I am sure that you can think of other cost benefits that the firm may experience, but please remember that you must give clear discussion on each point that you present.

The third part of your essay asks you to speak to the revenue advantages that the firm may receive as it grows in size. As a firm grows and gains more revenue, firms are able to increase in the production of their product and as a result it is able to expand and increase its sales. The firm is also able to attract more investors who will see these increases in revenue and want to benefit from this. The firm is also able to increase in its marketing and as a result it should increase in sales/revenue. The firm will also be able to invest in its staff and there is no end to the return that a more qualified staff can have in terms of the revenue that a firm can receive. This section of the question requires that you look at how expansion will be able to benefit the firm so that it has more earnings.

A point to note as we begin to look at the final section of the question is that all firms want to maximise profit. This means that they want to reduce costs as much as possible (experience the cost advantages) and they want to increase revenue as much as possible. So now I guess you are going to say that there is no answer to the final part of the question. Well, that is true. In Jamaica depending on the type of business that you are conducting, it may be that your main motivation is to lower your cost as your ability to increase your revenue may be limited, for others it may be to increase those revenue advantages as there may be little that you can do with regards to the cost of your product. Another point to note is that there are other factors influencing that size of a firm apart from the cost or revenue advantages and these points must be discussed as well. In Jamaica, these factors may include availability of capital, the devaluation of the Jamaican dollar, the effect of crime and violence, the instability in the economic sector, the availability of adequate technology, the availability of adequate skilled labour. These are real factors that influence the size of the firm. In conclusion, you will want to point out that although cost and revenue advantages will influence the size of the firm there are other factors that will affect the size of a firm as well. As you write your essay you must fully discuss each of these points.

There are some general points that I would like to make with regards to essay writing. To begin, you must make a plan! Now that is not a really new and novel concept is it? But, apparently it is not in fashion any more for student to write a plan but trust me it will help you to let you thoughts flow better.

Secondly, an essay is not something that you make 'jottings' on and expect to get the full marks. For each point that you make you need to explain, discuss give analysis ­ show the examiner that you are not just familiar with the topic - you actually know what you know. Unless the question asks for a list, please take time to develop each point that you are making.

Thirdly, the marks generally give a guide as to the amount of time to spend on this question and the amount of discussion, analysis, explanation and so on that are required. So if the question is worth 30 marks, then it is implying that you will spend 30 minutes and that the level of development is great. You must take time to develop your points and gain the marks. Listen, those 30 or 10 or 6 marks that you see on an essay question will be the hardest marks that you have ever worked for ­ but it is achievable.

Now please see if you can get your hands on some essay questions and try to do them ­ practise makes perfect. I keep telling my students that CAPE is not for the really brilliant students, it is for those students who are going to be disciplined and diligent in their work. Brilliant students who do not take this approach to their work may be disappointed with their performance. Please 'bukle down' and start to do some serious work.

Next week we will start our look at market structures so until then, blessings and peace.