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Small firms still far outnumber large firms in the economy. This could be because diseconomies of scale set in at low levels of output in some industries. There are also other reasons for the existence of so many small firms:-
1. Demand for variety - In many product areas consumers do not want standardisation. In the clothing industry, for example, there is a demand for individuality so that small firms dominate.
2. Personal service - Where personal service is important a firm may have to remain small. Service industries, like hairdressers, are often full of small firms for exactly this reason.
3. Finance - Small firms find it difficult to raise finance, making expansion impossible. This means that many firms have to remain small.
4. Location - If a firm is isolated, it may be remote from major markets and so it may have to stay small.
5. Luxury goods - Highly priced goods may have a very limited market and so they may have to be produced on a small scale.

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