3.3.3 Economies & Diseconomies of Scale

Question 1

Economies of scale

Answer 1

A proportionate savings in costs gained by an increased level of production

Question 2

Diseconomies of scale

Answer 2

A proportionate increase in costs is gained by a decreased level of production.

Question 3

Types of Internal Economies of Scale

Answer 3

Technical Economies
Purchasing Economies
Marketing Economies
Financial Economies
Managerial Economies
Risk-bearing Economies

Question 4

Define Technical Economies

Answer 4

Large-scale producers can employ advanced techniques

Question 5

Define Purchasing Economies

Answer 5

Large firms benefit from bulkbuying

Question 6

Define Marketing Economies

Answer 6

Spread advertising costs across many stores

Question 7

Define Financial Economies

Answer 7

Easier for large firms to raise capital

Question 8

Define Managerial Economies

Answer 8

Employ more specialized and efficient management

Question 9

Risk-bearing Economies

Answer 9

Large firms can afford to take risks due to overall profitability

Question 10

Minimum Efficient Scale (MES) Definition and Significance

Answer 10

Point on the LRATC curve where a firm achieves the lowest cost per unit

Optimal scale of production in the long run, minimizing costs per unit

Question 11

Internal Economies of Scale

Answer 11

Economies of scale that occur as a result of the growth in the scale of production

Question 12

External Economies of Scale

Answer 12

Economies of scale occur when there is an increase in the size of the industry in which the firm operates

Question 13

Sources Of External Economies Of Scale

Answer 13

Geographic Cluster
Transport Links
Skilled Labour