Economies and Diseconomies of Scale Flashcards
what is Minimum Efficiency Scale (MES)
the lowest level of output required to exploit full economies of scale
where is the MES
where LRAC stops falling
what are economies of scale
a reduction in LRAC as output increases
what is the mnemonic the remember the internal economies of scale
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what are the internal economies of scale
Risk bearing - new parts of the company are less risky
Financial - negotiate lower interest on loans
Managerial - can hire specialist managers
Technical - specialist machinery
Marketing - can bulk by advertising and less is needed
Purchasing - can bulk by resources which is cheaper
types of external economies of scale
-better transport infrastructure
-component supplies move closer
-research and development firms more closer
what are diseconomies of scale
an increase in LRAC as output increases
what are the types of diseconomies of scale
Control - difficult to monitor workers, they can slack off, less productivity
Communication - more difficult to communicate across the company
Co-ordination - difficult for different parts of the company/ departments to work efficiently alongside each other
Motivation - workers feel less valued, motivation falls, productivity falls
what are the 2 types of economies of scale
external
internal
