3.2.1 Growth (DEOS)

Question 1

Diseconomies of scale

What are the two types of DEOS?

Answer 1

Rising long run average costs as a business output increases

Internal and external DEOS

Question 2

Internal DEOS

Answer 2

Its when the average costs per unit increases as output increases due to factors within an organisation

Question 3

3 examples on internal diseconomies of scale

Answer 3

• Motivation
• Lack of coordination & control
• Communication

Question 4

How can motivation cause internal diseconomies of scale in larger business

Answer 4

-Workers in a large company may feel demotivated (this is because have little say in the organisation)

-Can lead to a feeling of powerlessness and alienation

-This leads to an increase in absenteeism & Lateness.

As a result there is reduction in productivity + lower output per worker.

This means increase in unit costs

Question 5

How can coordination and control cause internal DEOS?

Answer 5

• As a company grows it takes on new staff, makes new products, buys new premises.
  -All of this needs to be coordinated and controlled so the process of production can run smoothly.

-Workers may need monitoring which can add to costs
-May need more managers which increases average unit costs per unit (more layers of management)

Question 6

How can internal communication cause DEOS?

-departments
-Time

Answer 6

• size of organisation becomes larger
• Many layers of management is present and firms maybe divided into smaller departments

This means there is less face2face communication

• Many layers of management also means that it takes a long time for messages to get through.

• Overall it’s a less effective form of communication

Because of this form of communication :
- mistakes can occur
- this means more wastage

Therefore an higher average unit costs

Question 7

Overtrading

Answer 7

When a business grow too quickly (e.g expanding outlets and employing new staff) without sufficient financial resouces.

Question 8

overtrading can result in what problems

Answer 8

Cash flow problems

• may not have enough cash to ensure that the business is financing the expansion e.g new outlets , paying the wages etc

Question 9

Overall what are the problems arising from rapid growth?

Answer 9

Diseconomies of scale (Internal + External)

Internal DEOS includes - Motivation ,Coordination, Communication

External DEOS includes -Taxes , regulation , competition for raw materials + supplies , increase in FC, Congestion in city

Overtrading

Question 10

External DEOS
(5)

T
R
Comp
Con
Fc

Answer 10

Industry wide factors that make business operations more costly

e.g
-Taxes
-Regulation
-Competition for raw material + supplies
-Increase in fixed costs
-Congestion in city = Travelling workers = deliveries delayed