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Economics IGCSEPDF 71
118 pagesrevision 46932
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markets (conglomerates) or
countries.
Internal Diseconomies of Scale
(Disadvantages from within the firm)
Poor Communication:
As the firm
grows, the chain of command
becomes longer, slowing down
communication between different
departments or layers of
management.
● Lack of Control: Managers find it
harder to monitor the performance
and efficiency of every employee or
department in a very large
organisation, leading to potential
slack.
Poor Industrial Relations
(Demotivation): Workers can feel
like small parts of a huge machine,
leading to low morale, demotivation,
reduced productivity, and potential
conflicts or strikes.
Unsolved Past Paper Questions
Question 1 (4 Marks)
Explain two reasons why a sole trader might decide to change their business into a Private
Limited Company (Ltd).
Question 2 (6 Marks)
Analyse the benefits of a firm achieving internal
economies of scale.
Question 3 (8 Marks)
Discuss whether
profit maximisation
is always the most important objective for all firms.
Solved Answers (Note Form)
Q1:ReasonstoChangetoaLtd(4Marks)
Reason 1: To Gain Limited Liability
K: Sole traders have unlimited liability, meaning personal wealth is at risk from
business debts.
○ A:
Changing to a Ltd gives the owner and investors limited liability, protecting
their personal assets.
○ A:
This reduces the financial risk to the owner and makes the business more
secure.
Reason 2: To Raise Capital More Easily
A sole trader relies only on personal savings and bank loans.
A Ltd can raise capital by
K:
A:
sellingshares
privately to friends or family.
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