Economies of diseconomies of scale

Question 1

EoS is

Answer 1

a reduction in LRAC as output increases

the output rises at a faster rate than the total costs

Question 2

Internal EoS

Answer 2

Really Fun Mums Try Making Pies

Question 3

Risk bearing

Answer 3

Spread their risk over a larger output range, so lower average cost

Question 4

Financial

Answer 4

negotiate lower rates of interest from the bank as the firm is reputable, profitable and proven to be successful so are more trustworthy.

Question 5

Managerial

Answer 5

as a firm gets larger they can employ specialist managers, can monitor productivity of workforce and boost it, also bring specialist skills. Productivity rises faster than the cost of their salary

could also:
- increased dimensions
- indivisibility of capital
- research and development

Question 6

Technical

Answer 6

bringing in specialist machinery as a firm gets larger, or using factory more efficiently, employing more and specialising these workers which increases productivity

Question 7

Marketing

Answer 7

can bulk buy advertising, so negotiate better unit rate of advertising

Question 8

Purchasing

Answer 8

firm is able to buy their raw material in bulk – wholesale, which is cheaper per unit as can negotiate this per unit cost

Question 9

AC

Answer 9

TC/ Q

Question 10

External EoS:

Answer 10

• Better transport infrastructure = new roads/ new airports/ new rails
• Component suppliers move closer to you as you are a large firm that suppliers want be near
• Research and development firms move closer to you, so you can use r+d to improve technology and therefore efficiency.
• labour will come to the established area, e.h Silicon Valley

Question 11

in external EoS

Answer 11

total costs fall, over the same output, so AC falls

Question 12

Diseconomies of scale (3 C’s and an M)

Answer 12

• control
• communication
• coordination
• motivation

Question 13

Control

Answer 13

becomes much harder for managers to control the workforce, because there is such a large number of workers, therefore workers can slack more = lower productivity = lower Q

Question 14

Communication

Answer 14

much harder to spread messages through the company, because there is a lot of time and effort to spread these messages to the top, which reduces productivity

Question 15

Coordination

Answer 15

coordinating different departments becomes much more difficult, which reduces productivity

Question 16

Motivation

Answer 16

each individual worker feels less and less valued, and feel dispensable, which reduces worker morale, which reduces worker productivity.

Question 17

Other technical

Answer 17

• specialisation
• balanced team of machines
• increased dimensions
• indivisibility of capital
• r n d