Economies And Diseconomies Of Scale Flashcards
What is economies of scale
The unit cost advantages from expanding the scale of production in the LR
How can you tell economies of scale is being exploited
LRAC curve is declining
What is the long run Curve made of
A series of short run curves
When can economies of scale occur
From increasing returns to scale in the LR
Examples of internal economies of scale
- containerisation
- purchasing
- managerial
What is technical economies of scale
Gains in productivity / efficiency from scaling up production
Examples of technical economies to scale
Large scale businesses can afford to invest in specialist capital machinery.
They can also specialise the workforce
What is marketing economies of scale - monopsony power
A large film can purchase in bulk if it has monopsony power
What is managerial economies of scale
Division of labour where firms employ specialists to supervise production systems
What is financial economies of scale
Financial markets are more ‘credit worthy’ and have access to credit with favourable rates of borrowing usually rate larger firms
What is internal economies of scale
Expansion of the firm itself
LRAC decreases as output increases
Increasing returns
What is external economies of scale
Expansion of the industry of which the firm is a member
What are agglomeration economies
Businesses in similar industries clustering together and attracting an influx of skilled talent which then provides human capital to expanding businesses
Can every firm experience economies of scale
Only internal
What influences the size of economies of scale relative to market demand
The nature of production / technology requirements
What is constant returns to scale
Unit costs will be stable
When may diseconomies of scale occur
From a business expanding beyond an optimum size and losing productive efficiency
How can diseconomies occur
- control and communication problems
- co-operation
- negative effects of internal politics, information over-load
Key effects of diseconomies of scale
- business moved beyond optimum size
- lack of productive efficiency
- higher unit costs reduces total profits
