Chapter 7

Question 1

What is economies of scale:

Answer 1

It’s when the cost per unit falls as output increases:
- buying in bulk
- discounts
- low costs
- offer a low price

Question 2

What is internal economies of scale

Answer 2

Increase because of changes in the level of output by the organisation:
- Technical
- marketing
- purchasing
- administrative
- organisational
- financial
- r&d
- sales

Question 3

What is external economies of scale

Answer 3

Caused by factors outside of the organisation:
- skilled labour force
- suppliers
- infrastructure
- technological improvements
- R&D
- Local authority

Question 4

What is internal diseconomy of scale

Answer 4

Is when a business becomes less efficient as the output grows:
- poor communication
- motivation
- coordination
- duplication
- principal-agent problem
- administrative costs
- technical

Question 5

Factors of external diseconomies of scale:

Answer 5

• Natural resources
• wages
• congestion

Question 6

Implications and outcomes of economies of scale

Answer 6

• know that they exist
• what they are
• what their impacts will be on costs

Question 7

Positives of economies of scales:

Answer 7

Lower costs, can lead to lower prices and increased profits

Question 8

Negatives of economies of scale

Answer 8

• it can lead to barrier of entry, which can lead to lack of competition and increased prices