Economies and diseconomies of scale

Question 1

What is the benefit of economies of scale ?

Answer 1

They can achieve lower unit costs

Question 2

What is diseconomies of scale ?

Answer 2

When cost per unit rises as the firm grows

Question 3

Why do businesses grow ?

Answer 3

Because growth leads to :

Bigger profits
Greater Market share
Better survival
Lower cost

Question 4

What are the types of growth ?

Answer 4

Organic / internal

External

Question 5

What is organic growth ?

Answer 5

Improving existing practices like increasing sales and meeting demand

Question 6

What is external growth ?

Answer 6

Grow by taking over companies or merging

Question 7

How are internal economies of scale achieved ?

Answer 7

Acheived by growing internally

purchasing economies
Financial economies
Technological economies

Question 8

How are external economies of scale achieved ?

Answer 8

By growing in the sector you are in
Concerntrating econmies ( skilled labour in area )
Information economies ( info services are made to improve the sector )

Question 9

Why do diseconomies of scale occur ?

Answer 9

Communication problems
Reduction in moral of staff
Poor managment of production process

Question 10

What are the cost and benefits of economies of scale

Answer 10

Closer the capacity reaches the more overtime costs increase

Machines work longer - less maintenance time

More monitoring is needed on costs