4. economies and diseconomies of scale

Question 1

what are internal and external economies of scale

Answer 1

internal come from within the firm, external are outside factors from industry growth

Question 2

what is internal purchasing economies of scale

Answer 2

average costs fall as businesses buy more raw materials in bulk and get discounts from suppliers

Question 3

what is internal marketing economies of scale

Answer 3

average costs fall as businesses buy more promotional materials in bulk

Question 4

what is internal technical economies of scale

Answer 4

average costs fall as firms purchase better capital equipment

Question 5

what is internal financial economies of scale

Answer 5

average costs fall as banks offer lower interest rates

Question 6

what is internal managerial economies of scale

Answer 6

average costs fall as businesses higher more specialist workers

Question 7

what are internal risk bearing economies of scale

Answer 7

average costs fall as businesses grow into different markets, spreading risks

Question 8

what are external economies of scale

Answer 8

lower average unit costs for businesses as a result of improvements outside of the firm but within the same industry

Question 9

examples of external economies of scale

Answer 9

occur within the industry

local roads improved, easier transport
more training and teaching facilities

Question 10

what are communication diseconomies of scale

Answer 10

the greater number of employees, the worse communication is

Question 11

what are control diseconomies of scale

Answer 11

monitoring productivity and quality of output is harder

Question 12

what are co-ordination diseconomies of scale

Answer 12

it can be difficult to coordinate multiple branches in different regions

Question 13

what are co-operation / motivation diseconomies of scale

Answer 13

workers in large firms may develop a sense of alienation and a loss of moral due to lack of communication

Question 14

types of economies of scale

Answer 14

internal :
purchasing
marketing
managerial
financial
technical
risk bearing

external

Question 15

types of diseconomies of scale

Answer 15

communication
co-ordination
control
motivation / co-operation

Question 16

what are returns to scale

Answer 16

the change in output of a firm following an increase in factor inputs (bottom straight line of the AC curve

increases when the output increases by a greater proportion to the increase in inputs

Question 17

what happens to the AC curve in external economies of scale

Answer 17

moves down due to improved infrastructure or better training

Question 18

/
#’l;=-what happens to the AC curve when ][pl=herp,[;’ is external diseconomies of scale[=-

Answer 18

shifts up due to worse infrastructure or training provider shutting down

Question 19

how is the long run average cost curve derived

Answer 19

constructed by using the point of tangency with it’s short run cost curves, it basically makes all of the SRAC curves into one LRAC curve