Economies and Diseconomies of scale Flashcards
What are the sources of internal economies of scale?
Financial economies of scale
Technical Economies of scale
Purchasing economies of scale
Managerial economies of scale
Marketing economies of scale
Risk bearing economies of scale
What are the sources of internal diseconomies of scale?
Communication problems can result in delayed decision making which can increase average costs.
Co-ordination problems can be a result of poor management over the different departments of the business.
X-inefficiency
Bureaucracy
What are external economies of scale?
These are falling costs experienced by the firm when an industry grows, due to co-operation in R&D, growth in ancillary services, the attraction of skilled workers, and improved infrastructure.
What is the relationship between the LRAC curve and external diseconomies of scale?
When a firm benefits from external economies of scale, the LRAC curve will shift downwards and will shift upwards increasing average costs when external diseconomies of scale are experienced.
