3.3.3 Economies and diseconomies of scale

Question 1

Economies of scale

Answer 1

Economies of scale occurs when LRAC decreases as output increases.

Question 2

Internal economies of scale

Question 3

External economies of scale

Question 4

Diseconomies of scale

Answer 4

Diseconomies of scale occurs when LRAC increase as output increases.

Question 5

Types of economies of scale: Purchasing economies

Answer 5

A large firm can purchase factor inputs in bulk at lower prices if it has monopoly power.

Question 6

Types of economies of scale: Financial economies

Answer 6

Accessing loans at low rates of interest from commercial banks. This is because the financial markets usually rate larger firms to be more ‘credit worthy’ as they borrow more than smaller firms.

Question 7

Types of economies of scale: Managerial economies

Question 8

Types of economies of scale: Technical economies

Question 9

Types of economies of scale: Marketing economies

Question 10

Internal economies of scale

Answer 10

Unit cost advantages from a business expanding the scale of production in the long-run.

Question 11

External economies of scale