Economics - Production Flashcards
What are economies of scale?
Economies of scale occur when the factors of production are increased leading to lower average costs which means firms will have more profit.
What are internal economies of scale?
A result of the growth of the firm itself, leading to cost savings and resulting in a fall in average costs.
What are external economies of scale?
Those that a firm benefits from as a member of an industry or because of its location
due to factors outside direct control of firm.
What are diseconomies of scale?
Diseconomies of scale are the cost disadvantages that economic actors accrue due to an increase in organizational size or in output, resulting in production of goods and services at increased per-unit costs.
What are fixed costs?
Costs that are incurred irrespective of the level of output.
What are variable costs?
Costs that vary with the units of output reduced.
Why is bulk buying cheaper?
Buying in bulk is cheaper because making in bulk is cheaper. It’s called economy of scale. Businesses have some fixed costs, like building rental, utilities, salaries of all the workers it has to pay, and so on. Those things remain the same whether it’s making a hundred thousand widgets, or one widget.
How do you calculate economies of scale?
To calculate economies of scale, divide the percentage change in cost with the percentage change in output. If the result is less than one, that means that economies of scale exists.
