3.3.3- Economies And Diseconomies Of Scale Flashcards
What are the internal economies of scale?
-technical
-financial
-risk bearing
-managerial
-bulk buying
-advertising
What are technical economies of scale?
-can buy specialist machines and spread the cost over more output
-can use faster, high quality technology
-can carry out large scale research and development
What are financial economies of scale?
-more trusted by banks to repay as they have more collateral so they can get better deals with lower interest rates
-can access additional finance sources
What are risk bearing economies of scale?
-can absorb the impacts of failures over more units of output
-more likely to take risks so can grow further
What are managerial economies of scale?
-can employ specialist managers who make better decisions so decreased problems
What are bulk buying economies of scale?
-lower cpu
-less distribution and admin costs for the supplier
What are advertising economies of scale?
-can spread the cost of mass media advertising over more output
What are the external economies of scale?
-labour
-support services
How is labour an economy of scale?
-businesses established in an area with other successful firms find that labour comes to that area to find a job in that industry, which reduces cost and time to recruit
-firms can hire staff who have been trained by other businesses
How are support services an economy of scale?
-businesses who supply for large businesses will naturally move to the area where those businesses are based which reduces transport costs/ time delays
What are the diseconomies of scale?
-motivation
-control
-communication
How is control a diseconomy of scale?
-harder to control parts of the businesses that is miles away
-can cause poorer quality decisions
How is communication a diseconomy of scale?
-slow communication so causes breakdowns and takes longer to respond to change
What is minimum efficient scale?
Smallest amount of output that needs to be made to be productively efficient
What is it called when a firm is operating inside LRAC?
It is X-inefficient
