ACCA Applied Knowledge · Business and Technology · Microeconomic factors
Which of the following is most likely to be a reason why small firms survive alongside large firms in an industry?
Small firms survive mainly because they serve niche or local markets where customers value personalised service and flexibility, which large firms find hard or unprofitable to provide, even though large firms may enjoy lower unit costs elsewhere.
- ACustomers value personalised service in a niche marketCorrect
- BLarge firms always have higher average costs at every output level
- CSmall firms enjoy greater purchasing economies
- DSmall firms face no competition
Explanation
Small firms often survive by serving niche or local markets where customers value personal service or specialisation. Large firms do not always have higher costs, small firms generally lack purchasing economies, and small firms still face competition.
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