Variations in demand and other factors

Permanent change in demand may occur due to decline in the popularity of a product or due to a substitute. It may also be caused by changes in fashion, tastes, technology or methods of production so that the product that a firm was so far producing becomes outdated and hence not salable.

Cyclical fluctuations in demand means imbalance in demand and supply for a short period. Trade cycles involving alternatives phases of boom and depression are common phenomena.

Seasonal fluctuations changes in demand for certain products are seasonal in nature, e.g. demand for woolen garments changes according to winter or summer. The same is the case with umbrellas, raincoats, fans etc.

Erratic fluctuations in the quantity demanded occur in industries where products are not manufactured according to individual orders and designs at different prices e.g. jewellery, furniture etc.

Type of Organization: The size of the firm also depends on the type of organization. e.g. sole trading business concern or individual proprietorship, partnership firm, private companies that are managing business on small and medium scale. Joint Stock Companies require capital on large scale. Thus, the size of the firm also depends on the convenience of the directors from the point of view of the organization and management.

Availability of Inputs: The size can be large if the inputs are available on a large scale. Where the inputs will have to be transported from a distance and there is also some uncertainty, the size is bound to- be small. It is for this reason that government has been locating super thermal power houses near the coal mines.

In urban areas many facilities are available whereas in rural areas the entrepreneur has to face many difficulties.

Nature of Product: In the case of processing of raw materials resulting in the production of joint and by-products, the scale is naturally more if the entrepreneur decides to process all the
products. In case of production of less standardized and more artistic products the size is bound to be small.

Similarly, if the expectations of the entrepreneur are limited, business can be started on small scale and, if his expectations are more such as reputation, or if a unit is catering to a big market, the size of the undertaking will be larger.