3.3.3

Question 1

define internal economies of scale

Answer 1

increasing returns from expanding the scale of production in the long run leading to lower LRAC

Question 2

what are the 6 type so finternal economies of scale?

Answer 2

• Risk bearing
• managerial
• financial
• purchasing
• technical
• markering

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Question 3

explain financial economies of scale

Answer 3

larger firms have better access to debt or equity financing in capital markets, allowing them to raise funds at lower costs due to percieved lower risk. This allows them to secure access to credit with lower intrest and lowers cost of borrowing, lowering LRACs

Question 4

define diseconomies of scale

Answer 4

an increase in the unit average cost of supply as quantity increases

Question 5

what are some reasons for diseconomies of scale?

Answer 5

• as an organisation grwos it becomes more complex with more (costly) layers of management
• more layers and increased complexity means communication issues
• cultral and organisation issues affecting emplyee moral and producitvity

Question 7

define external economies of scale

Answer 7

fall in LRACs experinced by multiple firms within a specfici industry/ area