economies and diseconomies of scale Flashcards
what is the theory behind economies of scale?
it relates to the benefits that a firm can gain, by increasing the scale of their production.
what are the 6 internal economies of scale?
purchasing, financial, managerial, technical, marketing and risk bearing.
what is purchasing eos ?
this is related to “bulk-buying” regarding how much stock a firm purchases. when buying raw material, the larger quantity you buy the cheaper it gets.
what is financial economies of scale?
larger firms a able to negotiate much cheaper deals and are able to get cheaper loans due to them being reliable.
what is managerial economies of scale?
larger firms are able to appoint more specialist staff for example financial director.
what is technical eos ?
being able to utilise resources and space to its full capacity.
what is marketing eos?
more effective sources of advertising and marketing due to having more financial capital,
what is risk bearing eos?
larger firms spread the risk by diversifying into different products or expand over suppliers reducing cost.
what are external economies of scale?
it occurs due to growth of an industry that the business or firm operates in - the gains of being near similar firms.
what is concentration economies
concentration economies - firms benefit as an industry grows as skilled labour tend to move to that area. local colleges run specialist courses tend to locate nearby.
information economies?
information centres set up to benefit firms.
DEOS?
the point when unit costs stop falling and start to increase due to communication problems lack of staff etc..
what is the definition of EOS?
- as output goes up, cost per unit go down.
support services?
- external EOS as could be a garage that has set up near a car store or manufacture.
what are diseconomies of scale?
- definition = as output increases so does the unit cost
