Evaluate whether survival is always the most important objective for a firm in a recession (12)

Survival is undoubtedly a fundamental objective for a firm in a recessionary environment. A recession brings about a contraction in demand, decreased consumer spending, reduced access to credit, and overall economic uncertainty. Firms must weather these challenging conditions to stay afloat. Without survival as a priority, other objectives become irrelevant as the firm may cease to exist. Thus, maintaining operational continuity and ensuring financial stability becomes a top priority for many firms during a recession.

However, the singular focus on survival might not always be the most beneficial strategy. A myopic emphasis on merely surviving can inhibit a firm's ability to capitalise on opportunities that may arise during a recession. While the environment is harsh, recessions can also present avenues for innovation, restructuring, and strategic growth. Therefore, firms might prioritise objectives beyond mere survival, such as adaptation, resilience building, and even expansion where feasible.

Strategic adaptation becomes crucial during a recession. Firms that pivot their strategies, diversify their product lines, explore new markets, or invest in research and development (R&D) might not only survive but emerge stronger post-recession. Consider the example of companies like Apple or Microsoft, which invested in innovation and R&D during economic downturns, paving the way for sustained growth even in adverse economic conditions.

Additionally, preserving a firm's reputation and brand value can be pivotal during a recession. While cost-cutting measures may seem necessary for survival, indiscriminate actions like severe layoffs or compromising on product quality to reduce costs could tarnish a firm's reputation. Long-term success often hinges on maintaining customer loyalty and trust, which can be eroded by short-term survival-focused decisions.

Moreover, another critical objective during a recession is financial stability. Firms must manage their finances prudently, ensuring adequate liquidity and managing debt levels. While survival is paramount, a long-term perspective necessitates a balance between short-term survival measures and maintaining financial health for sustainable growth once the recession subsides.

Furthermore, the social responsibility of a firm comes into play. In challenging economic times, firms might prioritise objectives aligned with their social responsibilities, such as supporting local communities, maintaining employee welfare, or adopting environmentally sustainable practices. Such actions not only contribute positively to society but can also enhance the firm's reputation and long-term sustainability.

In judgement, while survival is undeniably a critical objective for a firm in a recession, it may not always be the sole or most important one. Firms need to balance the short-term imperative of survival with long-term strategic considerations. Adaptation, strategic growth, financial stability, reputation management, and social responsibility are objectives that, if pursued alongside survival, can position a firm to not only withstand the recession but also emerge stronger in the post-recession landscape. Hence, the importance of survival should be considered within a broader spectrum of objectives for firms navigating through economic downturns.

Evaluate the significance of diseconomies of scale to a firm (25 marks)

The NHS and other public sector institutions and organisations have grown to an exceptionally large level, though the concerns raised by healthcare and public economists can be seen to be unreasonable, due to the significance of diseconomies of scale to these public firms. It is first important to consider how utilising internal economies of scale will ensure that the quality of the NHS and other services are not jeopardised.

Internal economies of scale are where there is a reduction in long run average costs (LRAC) as output levels increase. Overtime, this can be denoted through the LRAC curve, where with an increase in output levels from Q1 to Q2, there is a large reduction in costs from C1 TO C2. This can be seen in how the NHS benefits from technical internal economies of scale, where they can invest in new technology, such as investing into online healthcare services, in order to reduce the strain on nurses and doctors with in-person check-ups, and instead, allow for them to be reallocated to serving patients who are suffering from more severe healthcare conditions.

This therefore leads to an increased quality of labour, due to the fact that employees are now able to spend more time tending to patients who require more care. Additionally, we can see that during COVID, with the NHS being put under extreme pressure, the increased demand for healthcare services led to there being scarce beds, ventilator machines and personal protective equipment (PPE), which could have otherwise been prevented if there was adequate investment into a larger quantity of equipment. Diagrammatically, if the NHS were to exceed the minimum efficient scale of QC, where increasing output from Q2 to Q3 would have increased costs from C2 to C3, because the public services are state-funded, the costs could be covered by the government and thus remove the financial burden from the institution. Though this would lead to diseconomies of scale, in being able to use their purchasing power to bulk buy necessary equipment, the NHS would be able to negotiate prices so that they can have lower costs spread across more units of output, this will mean that they can invest into a higher quantity of equipment for cheaper, and thus be able to efficiently meet the healthcare needs of the public, no matter the state of the economy. As a result, diseconomies of scale are necessary for public organisations to meet the high public demand, whilst symbiotically, not impacting the quality of their services through technical investments.

Furthermore, the NHS would be able to improve organisational performance through the use of managerial internal economies of scale. A concern raised by healthcare and public economists is the quality of the services provided by the healthcare industries, which would be unnecessary. By employing high-quality managers and senior leadership members, the NHS would be able to prevent miscommunication and coordination problems which would have otherwise been experienced as a result of diseconomies of scale. This can be seen in how skilled managers may have better motivation techniques that would help keep workers engaged in the high-paced environment of hospitals, therefore allowing them to be more productive as they not only have higher morale, but they are able to concentrate better on their work knowing that they have a supportive team to take care of them. In doing so, the workers would be able to treat their patients more efficiently, therefore not hindering the quality of their services.

On the other hand, there are notable problems which arise as a result of diseconomies of scale, one of which is the fact that it would be costly to these healthcare providers. Diseconomies of scale are where there is an increase in LRAC due to an increase in output levels, resulting in the cost of production for firms to increase. This is illustrated by a firm's overexpansion, leading them to exceed the minimum efficient scale of production on the LRAC curve. In particular, the healthcare industry is notorious for its slow decision-making, where they are unable to make changes efficiently because of time lag and a lack of bureaucratic coordination. Even if they

continue to use technical internal economies of scale, its benefits are limited due to the sheer volume of patients under the care of public services, which can not be quickly remedied by capital, which takes time to install. Also, though there may be managerial efficiencies in one firm, this may not be the case for all healthcare institutions, where although they are state funded, the quality of services varies geographically. Healthcare is best up North, Northumberland being the best clinically commissioned group (CCG) in 2022. This can be detrimental to the NHS, as overtime, the long waiting lists and inefficiencies that result in it having to move patients to private healthcare firms, such as HCA Healthcare. For this reason, diseconomies of scale are not significant in making efficient, swift improvements to public healthcare, and are therefore very costly.

Further concerns arise from worker inefficiencies, where large organisations like the NHS, are unable to accommodate for the needs of their workers, and thus leading to a fall in their utility. Nurses and doctors are known to have long working hours, which results in them having a worsened work-life balance due to them spending less time with their families or having leisure time, and devoting most of their time in the hospital. Even though they may be highly qualified, working within the medical industry is temporally demanding, which overtime, would lead to workers feeling underappreciated and burnt out. Detrimentally, this would lead to a fall in productivity, where for each worker, they will be treating fewer patients, where they fall victim to organisational slack. Alternatively, they may be treating more patients, but at the cost of their mental health, which would act as a disincentive for them to continue working in healthcare, and therefore choose to find another job. The potential solution proposed by some policymakers would be to increase oversight, so that workers would be incentivised to work more efficiently, however, this would not be as effective unless it was consistent. In acknowledging this, diseconomies of scale would not be as significant for such firms, as it would lead to further inefficiencies as opposed to combating them.

In judgement, the significance of diseconomies of scale for public healthcare services is not as important, because there are other ways that organisations can grow without having to increase their LRAC. In considering how the healthcare industry is already a large part of the UK's economy, being more than 10.6 million people, the NHS can greatly benefit from external economies of scale, which is where LRAC can be reduced due to the increased size of the industry itself. This can lead to an increased pool of skilled labour, as there will be an increased number of job vacancies and opportunities to earn higher wages, where workers can be trained and educated in order to increase their productive efficiency. Overtime, this can lead to an increase in the productive capacity of the UK economy, where there is an outward shift of the PPF curve from point A on PPF1 to point B PPF2. This is important when considering the growing UK population of more than 67.3 million people, which means that having an abundance of qualified labour would lead to more people's healthcare needs being tended to. For this reason, diseconomies of scale would be unnecessary.