3- Economies and diseconomies of scale Flashcards
1
Q
Types of internal economies of scale
A
- Technical economies
- Financial economies
- Managerial economies
- Risk-bearing economies
- Marketing and purchasing economies
2
Q
Types of external economies of scale
A
- Labour
3
Q
Technical economies of scale
A
- These arise as a result of what happens to the production process.
- Specialisation- appointment of specialist workers and machines.
- Balanced teams of machines
- Increased dimensions
- Research and development
- Indivisibility of capital
4
Q
Financial economies of scale
A
- Large firms, more assets, less risk, easier to access finance with lower interest rates.
5
Q
Risk-bearing economies of scale
A
- Large firms can operate in a range of markets, so if one fails, their whole business won’t collaspe.
6
Q
Managerial economies of scale
A
- Large firms can afford specialist managers in each field who have great knowledge of the job.
7
Q
Marketing and purchasing economies of scale
A
- Buying in bulk
- Specialisation: taking on more efficient buyers and sellers
- Distribution: cheaper transport due to large batches
8
Q
Labour external economies of scale
A
- If there are lots of successful firms in that industry in area lots more workers come to that area.
- Local education and training schemes will be set up to prepare people to take up jobs in that industry.
9
Q
Causes of diseconomies of scale
A
- Workers
- Geography
- Change
- Management
- Price of materials
10
Q
How workers can cause diseconomies of scale?
A
- In large firms workers can become demotivated due to not being noticed for promotion.
- Lack of identification with the business.
- Fall in productivity
11
Q
How geography can cause diseconomies of scale?
A
- A large firms has to transport finished products miles away.
- Large firms may find it hard to control parts of business miles away.
- Fall in productivity
12
Q
How change can cause diseconomies of scale?
A
Large firms are less flexible than smaller firms.
13
Q
How prices of materials can cause diseconomies of scale?
A
- Despite potential monopsony power, an increase in demand for raw material will increase prices and their costs/
14
Q
How management can cause diseconomies of scale?
A
- Coordination and control: hard to manage
- Communication: slow and inaccurate communication throughout large businesses.
- Fall in productivity
15
Q
What leads to internal economies of scale?
A
When quantity is increasing more than total costs.
