1.5 growth and evolution

Question 1

What is long run average costs?

Answer 1

Average costs over a long period of production

Question 2

What is the diseconomies of scale?

Answer 2

Increased per-wait costs as production expands

Question 3

What is the economies of scale?

Answer 3

Decreased per-unit

Question 4

What is a small organisation?

Answer 4

A business that is privately owned and operated with a small number of employees and relatively low volume of sales

Question 5

What is a large organisation?

Answer 5

A business that has a large number of employees + significant market share and uses large amounts of capital

Question 6

What are 5 types of internal economies of scale?

Answer 6

1. Technical economies (adopt different production techniques)
2. purchasing economies (larger quantity purchases -> cheaper prices)
3. marketing economies (marketing becomes cheaper when business expands)
4. managerial economies (growing companies mean more specialist positions
5. financial economies (business has more assets -> banks will allow loans at lower interest rates)

Question 7

What are the 3 types of internal diseconomies of scale?

Answer 7

1. communication problems (reduces the level of production/increases mistakes)
2. coordination and control problems (results in inefficient production and reduced quality of product)
3. motivation problems (staff will not work to their full capacity)

Question 8

What are 4 outcomes of the significance of economies of scale?

Answer 8

1. Businesses may be able to reduce price
2. Firms potentially benefit from higher profit margins
3. Will inference the size of a firm
4. Will influence market structure and therefore the degree of competition

Question 9

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