ECONOMIES AND DISECONOMIES OF SCALE

Question 1

What is economies of scale

Answer 1

Economies of scale (EoS) are the benefits to a business in the form of lower average unit costs, from increasing the size of operation.

Question 2

Look at the first graph

Answer 2

https://docs.google.com/document/d/1bT43_IhAwgMjyQhvdmPt7rtUnEpCW93a34_hVrk4aEk/edit

Question 3

What is the purchaing economy

Answer 3

Bigger businesses become more powerful witj their suppliers. They are more lickely to be able to negotiate discounts or longer periods of trade credit, reducing average costs. The supplier may also be more flexible in terms of design specifications and delivery agreements

Question 4

What is the technilogical enconomy

Answer 4

The bigger an organisation, the more advanced and sophisticated technological they may be able to afford. This could help the organisation increase productivity and lower average costs

Question 5

What is the managerial economy

Answer 5

Bigger organisations can afford to pay specialist ecployees to fuffil proctical roles. I.e. employing a qualified accountant to be head of finance. This could reduce outcourciung costs and increase efficiency, lowering average costs

Question 6

What is the financial enonomy

Answer 6

The larger an organisation, the more likely it will be to be able to negotiate favourable interest rates from lenders. This reduces the cost of borrowing money