3.3 Economies & Diseconomies of Scale

Question 1

What are returns to scale?

Answer 1

How output responds to a change in inputs

Question 2

What are increasing returns to scale?

Answer 2

When % change in output > % change in inputs

Question 3

What are decreasing returns to scale?

Answer 3

When % change in output < % change in inputs

Question 4

What are the effects on LRAC of economies of scale?

Answer 4

LRAC falls

Question 5

What is the lowest point on LRAC?

Answer 5

Productive efficiency

Question 6

Examples of internal economies of scale?

Answer 6

RMFPTM

Question 7

What are internal economies of scale?

Answer 7

Lower costs from a firm expanding

Question 8

Impact of internal economies of scale?

Answer 8

• Lower costs
• Larger firm scale
• Lower prices
• Employee benefits

Question 9

What are external economies of scale?

Answer 9

Lower costs from changes outside a firm

Question 10

Examples of external economies of scale?

Answer 10

• Relocation of suppliers to production centres
• Transport networks
• Influx of human capital

Question 11

Example of diseconomies of scale?

Answer 11

• Higher regulatory costs
• Office politics
• ABC

Question 12

What are diseconomies of scale?

Answer 12

Negative effects of an over- extended firm

Question 13

What is the Minimum Efficient Scale (MES)?

Answer 13

Where internal economies of scale have been fully exploited

Question 14

Causes of a high MES

Answer 14

Large fixed costs