Final answer:
Large firms fail for various reasons such as ineffective marketing, lack of innovation, poor financial management, and overreliance on existing business models. Market conditions, management issues, and competition also contribute to business failures. Such failures are often integral to maintaining a flexible and dynamic economic system.
Step-by-step explanation:
Large firms can fail due to several factors such as ineffective marketing, a lack of innovation, poor financial management, or an overreliance on existing business models. In a perfectly competitive market, firms that cannot consistently earn profits must exit the industry, a process that has significant consequences for workers, investors, and managers, potentially resulting in job losses, financial losses, and the loss of aspirations.
In the case of poor financial management, businesses might struggle due to the inability to manage costs or revenues effectively. Lack of innovation can render a firm's products or services obsolete, especially when disruptive technologies emerge. Furthermore, an overreliance on existing business models may prevent firms from adapting to market changes, leading to an inability to compete with more agile competitors.
Statistically, the U.S. Small Business Administration reported that in 2011, 534,907 new firms entered the market, whereas 575,691 firms failed. These failures can affect demand and supply conditions, and while painful, are considered a 'necessary evil' for a dynamic, market-oriented system that aims to satisfy customers, maintain low costs, and encourage innovation.