BENEFITS OF GROWTH - ECONOMIES OF SCALE Flashcards
a business may pursue growth becasue of eos of scale t/f
t
what are the 4 types of economies of sclae
purchasing
managerial
financial
techmnological
definition of eos
occur when unit costs fall as a business expands ,
economies of scalre realte to teh
volume of output
what is purchasing eos
As bs gets bigger its output increases so it will purchase more supplies such as rm and components.
what do purchasing eos give business over suppliers
power over suppleirs
why doees business gain power over suppliers from purchasing eos
casue busoiness becomes more important as theyre buying more supplies/rm/components fromthe supplier
during purchasing eos , suppliers become waht on businesses
dependent
since suppliers become dependent on bs as a result of bs beocming more important to tehm and buying more supplies
what may they be willing to do
reduces prices to keep the businesses orders
give rea; ;ofe example of epurchasing eos gone wrong
hint supermarkets
big supermarkets accused of psuhing price they pay to farmrers for milk below actual cop
what is technological eos
Occur when a large scale of operations enables particular technologies to be used efficiently
give example of technological eos - productoin line for car manufacturing industry
if only one car produced it would be incredibly expensive but if production line spread over many thousand of cars(as bs increases output) UC fall - hence why car comp eager to ensure demand is high
technological eos are importnat fofr bs that have …..
such as
very high fixed costs
such as energy firms
technological eos can also be associated with
movement from job production to job flow
explain technologicla eos froma fianncial pov
as bs increases output and grows
they have more finances
therfore theyre able to by a better quantity or quality of capital
this leads to mroe productivity in the business
therfore a reduction in the auc
ealting to technological eos froma financial pov
when productivity increases what does htis mean for the ratio of ouptut to input
ratio of output from the same input has increased
explain finanical eos
As bs gets bigger it has more assets and this may mean a bank is willing to lend to it at a lower ir as the risk is lower
financial eos reduce
ir costs
if a company fails to repay its loans what can the bank do
seize its assets
what is managerial EOS
As a bs expands may bring in specialist managers to focus on parts of the bs
specialist managers brought in are paid a
substantial wage
explain managerial eos through an example - HR
compare with small bs
E.g expanding bs may create a spedialsit hr dpt which is probably not cost effective in a small bs
Expertise enable better dm in larger company which can increase efficiency and reduce unit costs
YES COSTS INCREASE INTIALLY BUT OUTWEIGHED BY THE EFFICIECNY GAINS