(2) LR graph Internal diseconmies of scale and ES

Question 1

What are internal diseconomies of scale ?

Answer 1

This is when a firm expands too much, the LRAC curve goes up.

Question 2

How do you remember factors influencing internal diseconomies of scale ? and what are they

Answer 2

ABC
Allienation
Bureaucracy
Communication

Question 3

What is allienation and how does it relate to diseconomies ? and give examples

Answer 3

This is when workers will become allienated from each other. For instance, in large call centres employees are in small isolated cubicles in grey office areas. This can decrease motivation, decrease productivity and increase LRAC.

Question 4

What is bureaucrcy and how does it relate to diseconomies ?

Answer 4

This is when there are huge costs gone towards administrative policy making group who come up wth methods of etity rules and regulations. example in the NHS $15 billion is spent on administrative costs

Question 5

What are communication and how does it relate to diseconomies ?

Answer 5

This is when a firm expands and gets really big, communication slows a lot between employer and excutive managers. If there are slower communication, this will take up more time reducing production and increasing LRAC

Question 6

What is the point called at the minimum point the LRAC curve ?

Answer 6

This is called the minimum efficient scale.

Question 7

What are external economies of scale ?

Answer 7

entire industry’s output incrasinf will reduce the LRAC.

Question 8

Give an example of EOS

Answer 8

One example is in the tech industry. If firms need coders, as there an increase in the size of the tech indsutry resulting in more software companies, they will be able to to recruit software engineers more quickly and at lower pay increasing productivity. This will lower LRAC.

Question 9

How do external economies of scale relate to the LRAC curve ?

Answer 9

EOS will reduce LRAS for any amount produced. The LRAC will shift downwards from LRAC to LRAC1

Question 10

What is another example of EOS ?

Answer 10

They are knolwedge transfers. For example, as the LA film indsutry expands film producers will trasnfer knowledge such as the greenscreen. This will save costs in travelling places to shoot and know use greenscreens, reducing production costs by a lot. THis will shift LRAC downards from LRAC to LRAC1