22. Economies of Scale Flashcards
what are economies of scale
Economies of Scale are as the business grows bigger the average costs of production get smaller.
What is a purchasing economy of scale
The buyer has more storage space and more productive capacity, so they buy in bulk. Suppliers will give them a discount
What is a marketing economy of scale
Larger firms have a larger budget for advertising
What is the financial economy of scale
Financial institutions of scale see large businesses borrowing as less risky so they are more willing to lend them money at a lower interest rate to encourage them to borrow more
What is a technical economy of scale
Larger businesses have the ability to invest in the latest equipment and machinery
What is a Risk bearing economy of scale
As businesses get larger, their product range will expand, spreading the risk of failure
What is a diseconomy of scale
As businesses get larger they become more inefficient
What is a communication diseconomy of scale
Communicating across the world can be very difficult as you have to take into account cultures and languages
What is management diseconomies of scale
Larger businesses spread out over many sites and different managers will have different ideas of how to run things
What is labour diseconomies of scale
Workers may get bored of repetitive tasks
What is agglomeration diseconomies of scale
A business may take over too many different businesses and find it hard to coordinate all of them
