Economies/ Diseconomies Of Scale

Question 1

What is economics of scale?

Answer 1

As output grows = lower AC

Question 2

What are internal economies of scale

Answer 2

Arise because of the growth in output of the firms itself as it expands its own operations = reducing AC

Question 3

Types of internal economies of scale

Answer 3

• technical EOS = use of specialised equipment, manufacturing
• managerial EOS = can spread management and admin costs = lower AC
• financial EOS = better access to capital market = can secure loans are low interest rates
• marketing EOS = negotiate better deals with suppliers and distributors = lower input costs
• purchasing EOS = as a business gets bigger its able to buy in bulk = lowers AC

Question 4

What is external economies of scale

Answer 4

arise from factor outside the firm because of the growth in the size of the industry or the business environment in which the firm operates = reducing LRAC for individual firms

Question 5

What is diseconomies of scale

Answer 5

As output continues to grow = increases AC

Question 6

Types of diseconomies of scale

Answer 6

managerial diseconomies = larger firms - management becomes overt complex and less efficient