LIMITATIONS OF THE SCALE OF PRODUCTION OR TO THE GROWTH OF
limitations to the scale production and growth of firms
Extent of the market: when there is a high demand for certain product of a firm, this will motivate the firm to produce more goods and expand.
Availability of capital: the availability of adequate capital and other resources will enable a firm to expand and produce more goods, but when these resources are not available, growth and expansion are impossible.
Falling price of the commodity: A falling price of the commodity without corresponding increase in supply definitely tends to lower the scale of production.
Increased risks: it is known that the bigger a firm, the greater the level of risk and vice versa. In order to reduce risk the size of the firm has to be reduced.
Need to cater for individual taste: large firms are known and associated with standardization of products, while does not meet the taste of individuals. The meet this, there will be limitations the scale of production.
Nature of business: the nature of business is directly related to the scale production. When a large number of people demand for a particular commodity, it will require a large firm to handle it but when a personal services of barber for example is required, the size of the firm must be small.
Nature of the firm’s product: if a firm products are of inferior and perishable type, their size and growth are definitely going to be limited.
Increasing management costs: When a firm embarks on large scale expansion, there is a corresponding employment of managers and this tends to increase the cost of production of such firms.