3.3 - Internal Economies of Scale

Question 1

Identify the 7 internal economies of scale

Answer 1

Bulk purchasing
Managerial
Technical
Marketing
Financial
Risk bearing
Social + Welfare

Question 2

What are bulk purchasing economies of scale?

Answer 2

Leads to lower cost per unit purchased
x = £1, 10x = £8

Question 3

What are technical economies of scale?

Answer 3

Productivity gains from scaling up production
Technological investment
Improve productivity + efficiency

Question 4

What are managerial economies of scale?

Answer 4

Ability to hire specialist manager
Improved planning, decision making + execution

Question 5

What are marketing economies of scale?

Answer 5

Access to large scale promotion
Stronger purchasing power

Question 6

What are financial economies of scale?

Answer 6

Greater access to finance
Access to lower interest + borrowing rates

Question 7

What are risk bearing economies of scale?

Answer 7

Innovation + product range diversification
More resilience
Less vulnerable to losses in particular areas

Question 8

What are social + welfare economies of scale?

Answer 8

Staff benefits
Attract + retain high standard employees

Question 9

What is the law of increased dimensions?

Answer 9

Relates to cubic law where doubling height/width of building/container leads to more than proportionate increase in capacity

Question 10

Identify the 3 internal diseconomies of scale

Answer 10

Lack of motivation
Poor communication
Co-ordination

Question 11

How can a lack of motivation result in diseconomies of scale?

Answer 11

Workers feel underappreciated/valued
Difficult to develop individual relationships in large firms
Motivation falls, productivity may fall

Question 12

How can poor communication result in diseconomies of scale?

Answer 12

Difficult for large firms to communicate personally + intricately
Notices can go misread or misunderstood

Question 13

How can coordination result in diseconomies of scale?

Answer 13

Large firms require meticulous organisation
Complex communication chains
New layers of management may be required - costs

Question 14

What are diseconomies of scale?

Answer 14

Increases in unit costs of supply in the long run

Question 15

What are the key effects of diseconomies of scale?

Answer 15

Business moves beyond optimum size
Reduced total profit
Higher market prices to cover costs
Lost competitiveness, reduced market share + share price