3.3.3

Question 1

What’s EOS?

Answer 1

Cost advantages that a business can exploit by expanding their scale of production.

Question 2

What’s diseconomies of scale?

Answer 2

This is when average costs increases as output increases while the business expands.

Question 3

Where is the minimum efficient scale?

Answer 3

At the lowest point of the LRAC curve.

Question 4

What’s internal economies of scale?

Answer 4

Cost advantages that a business can exploit by expanding their scale of production.

Question 5

What’s external economies of scale?

Answer 5

Cost advantages that an industry can exploit by expanding their scale of production.

Question 6

Name 2 examples of internal economies of scale

Answer 6

Financial
- When larger firms raise finance easier due to less risk associated with that firm

Managerial
- When larger firms can afford more specialized workers and managers

Technical
- Reduction in the average cost of production due to usage of more advanced machinery

Risk bearing
- When larger firms can sell to more markets + larger product range to spread risk and lower average costs

Question 7

Name 2 examples of internal diseconomies of scale

Answer 7

• Slower decision making
• Alienation of workforce
• Deterioration of communication