3.2 Flashcards
Diseconomies of scale
A rise in average unit costs experienced as business grows in size
Economies of scale
When average costs can fall as total output increases in a business
External economies of scale
Average costs reductions available to all businesses as industry grows
Financial economies of scale
Large firms have advantages when they try to raise finance as they will have a wider variety 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 also increase
Internal economies of scale
When a business invests in expanding production resulting in lower average unit costs
Purchasing 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
Managerial economies of scale
As a firm grows they can afford to employ specialist managers e.g HR
Technical economies of scale
Large businesses can often be more efficient through the use of capital equipment
Horizontal integration
The joining of businesses that are in exactly the same line of business
Merger
When two businesses join together and 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
External growth
Expansion by either merging with or taking over another business
