Advantages and disadvantages of small and large firms

There are many bubble tea shops in Macau, where they sell slightly differentiated drinks. For instance, some bubble tea
shops offer green tea with lots of tempting grapefruits while some offer cold whipped cream on top of the hot tea. It is
quite easy to enter the bubble tea market in Macau as the potential investors just have to pay for the franchise license to
and it only requires two employees to operate the shop. The most popular bubble tea shops are KOI, Thailax, Comebuy,
and Gathering.

(a) Identify and explain the type of market structure for the bubble tea market in Macau. (3%)
Monopolistic competition (1)  the bubble tea market consists of many small firms (1) and the barrier to entry
is quite low (1)
(b) What evidence is there to suggest that the bubble tea shop is a micro business. (3%)
Bubble tea shop usually has just 1-2 employees to operate the shop (1)  it fits the EU definition of business size
(1) that any firm with less than 2 employees is a micro business (1)
(c) Explain one advantage and one disadvantage of bubble tea shops over the large firms. (8%)
Intro (paraphrasing the question)

Personal service (1)  small firms like bubble tea shops can mix the drinks as requested by the customers (1) 
e.g. putting the cold shipped cream or selected grapefruit on top of the tea (1)  it enable bubble tea shops to
win a lot of customers and earn higher profits (1)

Vulnerability (1)  the level of competition in bubble tea market is quite intense  small firms like bubble tea
shops have less resources or capital to draw on (1)  they are more difficult to survive than large firms (1)

Accept other appropriate response

To encourage the growth of businesses, the Macau government offers no interest loan to small and medium-sized
enterprise. This ensure that small firms like bubble tea shops can obtain the capital needed to grow their businesses.
(d) With reference to the information above, identify and explain the factor influencing the growth of firms. (4%)
Access to finance (1)  small firms like bubble tea shop needs money or capital (1)  e.g. obtaining the
franchise license and other necessary equipment for making drinks (1)  the no interest loan offered by the
Macau government can help bubble tea shops to grow their businesses (1).

(e) Besides the factor identified in (d), state two other factors influencing the growth of firms. (2%)
Complete sentence
Any two (@1)
Government regulation, economies of scale, the desire to spread risk, the desire to take over competitors

(f) Explain two reasons that bubble tea shops tend to stay small. (6%)
Intro (paraphrasing the question)
Aims of the entrepreneur (1)  some owners of the bubble tea shop prefer to run a small business (1)  they do
not want to take responsibility of taking on more workers, running different bubble tea shops (1)  because
they need time and flexibility to pursue their ‘lifestyle’ (1)

Nature of the market (1)  the set-up cost for bubble tea shop is quite low (1)  the investors just have to pay
for the franchise license and other equipment (1)  a lot of bubble tea shops will enter the market and make the
level of competition more intensive (1)  therefore, the fierce competition stop any single bubble tea shop from
growing.