3.2.1 Internal Economies Of Scale (IEoS) Flashcards
Where do Internal Economies of Scale come from
They arise from the growth of the firm itself
What is a Technical Economy of Scale
A large-scale business which can afford to invest in expensive and speciaist capital machinery
This will reduce their average costs
Example: Technology to improve stock control would be viable for a national supermarket chain but wouldn’t be practical for a corner shop
What is specialisation of the workforce
A large-scale firm splitting complex production processes into seperate tasks to boost productivity
What is the Law of Increased Dimensions
Where doubling the height and width of a tanker or building leads to a more than proportionate increase in the cubic capacity.
What is a Marketing Economy of Scale and Monopsony power
A large-scale firm can spread its advertising and marketing budget over a much larger output,
It can purchase its factor inputs in bulk and at a discounted price if it has monopsony buying power.
What is a Managerial Economy of Scale
Large-scale manufacturers employ specialists to supervise production systems.
Investment in HR and specialist equipment will raise productivity and reduce unit costs
What is a Financial Economy of Scale
Where larger firms have more favourability with banks and credit facilities whereas smaller firms may face higher rates on overdrafts and loans.
What is a Network Economy of Scale
Where the marginal cost of adding one more user to the network is close to zero yet the resulting benefits could be huge as each user can then interact and purchase all things on the network
What is a Purchasing Economy of Scale
A growing firm can buy more raw materials in bulk and therefore negotiate a lower price. This will reduce average costs as the output will keep increasing.
What is an External Economy of scale
These occur outside of a firm, within an industry
For Example
