Concept of the firm

Refers to the physical establishment of capital used in production and distribution of goods and services.

OR

Is the smallest business productive unit owned by the firm.

It refers to the production units devoted to creation of particular goods and services such unit will have a distinct output or range of output in the form of goods and services.

Is any productive business unit with its own or more management and control e.g. KTM, MUTEX, IPP MEDIA in Tanzania.

Is the sum of all firms that produce similar line of products but being differentiated in terms of color, labels, grades e.g. textile industry, building industry and cement manufacturing industry in Tanzania.

The primary objective of any business firm is to maximize profit, other objectives may be:-

1. Maximize output.
2. Maximize sales and total revenue.
3. Employment creation.
4. Cost minimization.

Refers to the establishment of the firm to an area or place irrespective whether other firms exist or do not.

Producers usually consider many factors before establishing a firm so as to produce at less quality earns much revenue and maximize profit. These factors include:

1. Raw materials. The producer would prefer to establish a firm where there are raw materials. That is the case when raw materials are bulky or perishable which are difficult to transport.
2. Market. The firm is located near the market especially when final products are bulky or perishable E.g. furniture making, milking process etc.
3. Power. It attracts industries especially when power is difficult to transport or when it is bulky e.g. steel industries.
4. Transport. Most firms are built near transport routes E.g. roads or harbors to make easy transportation of goods from factories to the market.
5. Water. This is when water is used as an input e.g. production of hydro-electricity, beer.
6. External economies of scale. Most firms are located where others already exist so as to share the same facilities enjoy external economies of scale.
7. Government policies. The government can establish or encourage the establishment of a firm in an area to create employment or as a policy to balance development.

Refers to the concentration of firms in one area.

OR

The establishment of firms in a place where other firms already exist because of proximity to raw materials, power, market etc.

1. It encourages the establishment of other related business enterprises in one area i.e. Bank, insurance agent etc.
2. Helps to employ more skilled and experienced staffs.
3. Outputs of some firms may be used as inputs of other firms.
4. Increases production and reduces the transport cost.
5. Easy to get loans from financial institutions because it is easy to be trusted.
6. Enable the workers from one firm to share skills and experience to the workers of the other firms.

1. It may result into congestion of population in one area or town hence difficult to provide all necessary needs i.e. Housing, education, health Center etc.
2. It may lead to the underdevelopment of some parts of the country because people migrate from one part to another where there are few firms on another part, where there is more firms on industries to secure employment.
3. It is not desirable to have many firms in one area only especially when an event occurs e.g. calamities.
4. This can lead to unemployment of large number of workers especially when the industry or firms are forced to close.