Microeconomic Decision-Makers - Firms

This section explores the characteristics and decision-making processes of firms, categorized by their sector of the economy: primary, secondary, and tertiary.

Primary Sector Firms

Definition: Firms in the primary sector extract raw materials directly from the natural environment. This includes agriculture, fishing, forestry, and mining.

Characteristics:

• High capital investment in land and equipment.
• Vulnerable to weather and environmental factors.
• Often located in remote areas.
• Relatively low productivity per worker compared to other sectors.
• Subject to fluctuations in global commodity prices.

Examples: Farms, fishing boats, mines, logging companies.

Key Decisions:

• Production levels: Decisions about how much to produce based on market demand and resource availability.
• Resource allocation: Choosing which crops to grow, which fish to catch, or which minerals to mine.
• Technological adoption: Investing in new technologies to improve efficiency.
• Pricing strategies: Determining prices based on costs and market conditions.

Secondary Sector Firms

Definition: Firms in the secondary sector transform raw materials into finished goods. This includes manufacturing, construction, and energy production.

Characteristics:

• High capital investment in factories and machinery.
• Often located in urban areas with access to markets and transport.
• Higher productivity per worker than the primary sector.
• Subject to competition from other manufacturers.
• Can be affected by changes in technology and global trade.

Examples: Car manufacturers, food processors, construction companies, power plants.

Key Decisions:

• Production methods: Choosing the most efficient ways to produce goods.
• Inventory management: Balancing the costs of holding stock with the risk of stockouts.
• Quality control: Ensuring that products meet required standards.
• Investment in new equipment: Maintaining competitiveness through technological upgrades.

Tertiary Sector Firms

Definition: Firms in the tertiary sector provide services to individuals and other businesses. This includes retail, banking, healthcare, education, and tourism.

Characteristics:

• Limited capital investment compared to the primary and secondary sectors.
• Often located in areas with a high concentration of customers.
• High reliance on human capital and customer service.
• Subject to competition from other service providers.
• Can be affected by changes in consumer demand and economic conditions.

Examples: Shops, banks, hospitals, schools, hotels, travel agencies.

Key Decisions:

• Pricing: Setting prices for services based on value and competition.
• Customer service: Ensuring customer satisfaction and loyalty.
• Marketing and advertising: Attracting new customers.
• Staffing levels: Determining the number of employees needed to provide services.

Sector	Main Activities	Capital Investment	Productivity	Examples
Primary	Extraction of raw materials	High	Low	Farming, fishing, mining
Secondary	Transformation of raw materials into finished goods	Very High	Medium	Manufacturing, construction
Tertiary	Provision of services	Low	High	Retail, banking, healthcare

Further Considerations:

• Market Structure: Firms in each sector operate under different market structures (e.g., perfect competition, monopoly).
• External Factors: Firms are affected by external factors such as government regulations, economic conditions, and technological changes.
• Profit Maximization: The primary goal of most firms is to maximize profits.