2.1.1 growth Flashcards
What are internal economies of scale?
Occur when a firm becomes larger and average costs of production fall as output increases.
What are the types of internal economies of scale? [6]
- Risk-bearing
- Financial
- Managerial
- Technological
- Marketing
- Purchasing
What is risk-bearing economies of scale?
When a firm becomes larger they can expand their production range. Therefore they can spread the cost of uncertainty; if one part is unsuccessful, they have other parts to fall back on.
What is financial economies of scale?
Banks are willing to lend loans more cheaply to larger firms as they are deemed less risky. Therefore, larger firms can take advantage of cheaper credit.
What is managerial economies of scale?
Larger firms are more able to specialise and divide their labour. They can employ specialist managers and supervisors, which lowers average costs.
What is technological economies of scale?
Larger firms can divide their marketing budgets across larger outputs, so the average cost of advertising per unit is less than that of a smaller firm.
What is purchasing economies of scale?
Larger firms can bulk-buy, which means each unit will cost them less. For example, supermarkets have more buying power from farmers than corner shops, so they can negotiate better deals.
What are external economies of scale?
These are economies of scale that occur within an industry, rather than just a business.
For example, local roads may improve so transport costs for local industries will fall.
What is the name of the minimum point on the long run average cost curve?
It is the minimum efficient scale, and is where the optimum level of output is since costs are lowest as economies of scale have been fully utilised.
What does dominance over a market allow a firm to do?
It allows them to gain price setting powers and discourages other firms to enter the market.
They could also gain monopsony power which allows them to buy their stock at a lower price.
How can a firm gain competitive advantage?
Through price, quality, cost or through a niche market.
Essentially the firm has a unique feature which allows it to stand out and makes it superior to its competition.
When does a firm gain a cost competitive advantage?
When it can lower its average costs and create maximum value to consumers.
However it is difficult to maintain a cost competitive advantage, and so firms must be able to compete with other benefits.
What happens to the elasticity of demand when brand loyalty increases for a firm?
It becomes more inelastic as people are more willing to pay a higher price.
What are some problems can arise from growth? [2]
- Diseconomies of scale
- Potential skills shortages
How can there be diseconomies of scale with too much growth? [3]
- Control; It becomes harder to monitor how productive the workforce is as a firm becomes larger
- Coordination; it is harder and complicated to coordinate every worker when there are thousands of employees
- Communication; workers may start to feel alienated and excluded as the firm grows, leading to fall in productivity and increasing average costs
What does corporate culture include? [3]
- Shared values of a firm or workplace
- The implicit beliefs and norms that influence all aspects of working life within a firm
- Day-to-day behaviour of employees
Why do some firms try and ensure their employees are well looked-after?
They are more likely to be productive and it increases loyalty to the employer, meaning they are less likely to leave.
What is the benefit of having a strong corporate culture?
It could determine success of a firm in the long run, and could make them stronger and more productive.
