Small firms still far outnumber
large firms in the economy. This could be because
diseconomies of scale set in at low levels of output in some industries. There are also other reasons for the existence of so many
small firms:-
1.
Demand for variety - In many product areas consumers do not want
standardisation. In the clothing industry, for example, there is a
demand for individuality so that small firms dominate.
2.
Personal service - Where personal service is important a
firm may have to remain small. Service industries, like
hairdressers, are often full of small firms for exactly this reason.
3.
Finance -
Small firms find it difficult to raise finance, making expansion impossible. This means that many firms have to remain
small.
4.
Location - If a firm is
isolated, it may be remote from major markets and so it may have to stay small.
5.
Luxury goods - Highly
priced goods may have a very limited market and so they may have to be produced on a small scale.