3.3 - External Economies of Scale Flashcards
What are external economies of scale?
Reduced unit costs due to growth of industry
Benefits most/all participant firms
Give 3 causes of external economies of scale
Similar firms share resources
Higher number of skilled staff
Ability to pool/share R+D
Suppliers may locate close by
Potential for improved transport + infrastructure
How does sharing resources result in economies of scale?
Lower supply cost
Removes middlemen, handling costs etc
How does a higher number of staff result in economies of scale?
Skilled Labour Supply
Productivity
Reduced training costs
How does R+D pooling result in economies of scale?
Reduced research costs
Productivity
What are external diseconomies of scale?
Factors outside firm which result in higher unit costs
Give 3 examples of external diseconomies of scale
Rising transport demand + prices
Rising component + raw material demand
Competition for FoP
How can transport result in diseconomies of scale?
Increasing demand causes a rise in price
Contributes to variable costs
How does component demand result in diseconomies of scale?
Suppliers raise prices
Compounded by competition
