Entrepreneurial decision making and the structure, size and scope of firms
Entrepreneurs must also figure out the type of business structure, scale of operation, and scope of activities that keeps per-unit costs low. Their pursuit of profit encourages them to do so. Unlike other economic systems, a market economy does not mandate or limit the types of firms that are permitted to compete. Any form of business organization is permissible. An owner-operated firm, a partnership, a corporation, an employee-owned firm, a consumer cooperative, a commune, or any other form of business is free to enter the market. To be successful, however, a business structure must be cost-effective. A form of business organization that results in high per-unit cost will be driven from a competitive market by lower-cost rivals.
The same is true for the size of a firm. For some products, a business must be quite large to take full advantage of economies of scale. When per-unit costs decline as output increases, small businesses tend to have higher production costs (and therefore higher prices) than their larger counterparts. When this is the case, consumers interested in getting the maximum value for their money will tend to buy from the lower-priced, larger