1.2: Economies of Scale Flashcards
1.2.1: Economies of Scale1.2.2: Public Sector1.2.3: Private Sector Ownership 1.2.4: Business Costs1.2.5: Break-Even Analysis 1.2.6: Sources of Finance
What are Economies of Scale
The reduction in average cost per unit
The First type of Economies of Scale is Internal Economies. What are they?
Bulk-Buying (Purchasing), Financial, Technical, Marketing, Managerial and Risk-Bearing
How are Technical Economies achieved
To grow a business will increase production by making greater use of capital equipment so more can be produced with less waste and greater efficiency
How are Marketing Economies achieved
An increased scale of production means that marketing costs are now spread over more units therefore reducing the average costs of marketing
How are Managerial Economies achieved
As the business grows in size so the levels of hierarchy with in the business increase and they employ specialists in each field because they make far fewer mistakes
How are Educational Economies achieved
Colleges assist with the development of a skilled labour force by offering skills-based courses and R&D capabilities
How are Supplier Economies achieved
Suppliers will look to relocate themselves closer to the industry to reduce transport costs and responsiveness to use a Just-In-Time System
How are Infrastructure Economies achieved
Improved road networks, better rail and port links, faster broadband services and improved telecommunications all of these lower the operating cost of the entire industry through increased levels of efficiency
How do Co-Ordination Diseconomies occur
As the business grows different working practices are used over different locations meaning its difficult for management to monitor so mistakes start to occur which leads to a rise in the LRACs
How do Communication Diseconomies occur
As the business grows hierarchy levels grow, this makes communication ineffective due to messages being lost which can lead to some staff not understanding their role such actions lead to low productivity levels and a rise in LRACs
How do Motivational Diseconomies occur
The combination of Co-ordination and Communication leads to low productivity and production levels raising costs and making a firm less competitive with the market
Are Diseconomies Inevitable
Their impact can be minimised by improving systems before hand
What is the Public Sector
Businesses owned, financed, and controlled by the state such as The NHS, Armed Forces, and Education they are non-profit making and paid for by taxation
Why is the Public Sector Important
Largest Employers in Europe, the govt spend over £800 billion / year , the largest being the NHS
What is the difference between Public Goods and Merit Goods
Public: Necessities that dont generate profit like street lighting, forcers and the police
Merit: Something the govt thinks is good for us that we should all have whether we can afford it or not
