Firms differ in size, and size changes cost, flexibility and control. A fair comparison looks at cost per unit, profit per unit or margin, flexibility and market served, then reaches a conclusion that depends on conditions. This is the evaluation step of firms, costs and scale.
How do you compare firm sizes step by step?
- Choose the measures. Use at least one figure (average cost or profit margin) and one non-numerical factor (flexibility, service, control).
- Calculate the figures for each firm with the same formulas.
- Say what each size is good at. Larger firms can use economies of scale, find finance more easily and supply large orders. Smaller firms adapt quickly, offer personal service and have shorter chains of decision.
- Link to the market. Mass products suit large output. Custom or local products can suit small output.
- Conclude with a condition. Avoid “larger is better” or “smaller is better” with no qualification.
Worked example
Tandem Print is a fictional small shop. NorthGate Printing is a fictional large firm. Both print wedding invitations and flyers.
| Tandem Print (small) | NorthGate Printing (large) | |
|---|---|---|
| Items per month | 2,000 | 40,000 |
| Total cost (RM) | 10,000 | 120,000 |
| Average cost per item | 5.00 | 3.00 |
| Average selling price (RM) | 7.00 | 4.00 |
| Revenue (RM) | 14,000 | 160,000 |
| Profit (RM) | 4,000 | 40,000 |
| Profit per item | 2.00 | 1.00 |
| Profit margin (profit ÷ revenue) | 4,000 ÷ 14,000 = 28.6% | 40,000 ÷ 160,000 = 25.0% |
Reading the table. NorthGate has the lower cost per item and the larger total profit. Tandem has the higher profit per item and the higher margin, because customers pay more for a custom job.
Conclusion with a condition. A larger firm is better placed for standard, high-volume flyers where low unit cost wins orders. A smaller firm can be as profitable per item, or more, for personalised invitations where customers pay for service. Which is better depends on the market each is serving.
The mistake to watch for
Mistaken answer: “NorthGate makes RM40,000 profit and Tandem only RM4,000, so large firms are better.”
This compares total profit only. NorthGate has twenty times the output of Tandem, so a larger total is expected.
Per item and as a share of revenue, Tandem does at least as well. Choose a measure that fits the question, and state which one you used. The percentage-base explorer helps check margins.
Check yourself
1. Firm A has revenue RM90,000 and costs RM81,000. Firm B has revenue RM20,000 and costs RM17,000. Which has the higher profit and which the higher profit margin?
Show answer
Firm A profit = RM9,000, margin = 9,000 ÷ 90,000 = 10%. Firm B profit = RM3,000, margin = 3,000 ÷ 20,000 = 15%. A has the higher profit, B the higher margin.
2. Give one reason a small firm may keep its customers even when a large firm sells at a lower price.
Show answer
It may offer a personal or customised service, or quicker response to individual requests, which some customers value above a lower price.
3. Complete: “A larger firm is likely to be better than a smaller one when …”
Show answer
Any conditional answer, for example: “…the product is standard and sold in high volume, so economies of scale cut cost per unit and low prices win orders.”
Where this leads next
Margins connect directly to profit, revenue and cost. For the market side, see market structures.
If your evaluation still ends in a flat opinion, a teacher in online one-to-one Economics tuition can help you weigh both sides and write a conclusion with a condition.