3.2 Flashcards
Diseconomies of Scale
A rise in average unit costs experienced as a business grows in size.
Economies of Scale
When average unit costs fall as total output increases in a business.
External Economies of Scale
The average cost reductions available to all businesses as the industry grows.
Financial Economies of Scale
The advantages larger firms have when trying to raise finance as they have a wider range of sources to choose from and they can often gain better interest rates.
Growth
Expanding the sales revenue of a business, probably in hope that profits will increase too.
Internal Economies of Scale
When a business invests in expanding production resulting in lower average costs.
Purchasing/Marketing Economies of Scale
Large firms are likely to get better rates when buying raw materials in bulk
Risk Bearing Economies of Scale
As a firm grows they may diversify to reduce risk
Specialisation/Managerial Economies of Scale
As a firm grows they can afford to employ specialist managers such as in marketing, this links to Human Resources.
Technical Economies of Scale
Large businesses can often be more efficient through the use of capital equipment.
Horizontal Integration
The joining of businesses that operate in the same market.
Merger
When two businesses join together to operate as one.
Takeover
When one business acquires a majority shareholding of another business to gain control.
Vertical Integration
The joining of two businesses at different stages of production
Inorganic (External) Growth
Expansion by either merging with, or taking over another business.
