12: Operational strategies: scale and resource mix

Question 1

Economies of scale:

Answer 1

The benefits enjoyed by a firm as a result of operating on a large scale, leading to a fall in average costs.

Question 2

Diseconomies of scale:

Answer 2

The disadvantages experienced by a firm as a result of operating beyond optimum output, leading to a rise in average costs.

Question 3

Purchasing economies:

Answer 3

Benefit of buying on a large scale leading to lower average costs from suppliers.

Question 4

Technical economies:

Answer 4

Ability of larger firms to buy technically advanced equipment and spread the cost over a larger number of units.

Question 5

Specialisation:

Answer 5

The ability to employ specialists, e.g. accountants, and for staff to focus on one particular area or function.

Question 6

Average cost:

Answer 6

Total cost divided by the number of units produced to give cost per item.

Question 7

Communication diseconomy:

Answer 7

The breakdown in effective communication resulting from an increase in size of operations.

Question 8

Coordination diseconomy:

Answer 8

The breakdown in effective coordination resulting from an increase in size of operations.

Question 9

Resource mix:

Answer 9

The combination of capital and human resources utilised within a business to achieve the required output.

Question 10

Optimum resource mix:

Answer 10

The combination of capital and human resources which allows for the greatest efficiency.

Question 11

Capital intensive:

Answer 11

Businesses that rely more heavily upon capital equipment, e.g. machinery and computers rather than labour.

Question 12

Labour intensive:

Answer 12

Businesses that rely more heavily upon labour, i.e. the workforce rather than capital equipment.