Economies of scale

Question 1

List the 5 economies of scale

Answer 1

purchasing economies
technical economies 
marketing economies
managerial economies
financial economies

Question 2

How can large businesses benefit from purchasing economies

Answer 2

when purchasing raw materials/components in bulk they can be offered a discount thus reducing the unit cost of each item

Question 3

How can large businesses benefit from marketing economies

Answer 3

• they can purchase their own vehicles and not rely on other firms
• transport costs will be reduced using larger vehicles
• larger businesses may be able to hire very little sales staff to sell many product lines whereas smaller businesses need more sales staff

Question 4

How can large businesses benefit from financial economies

Answer 4

• it is cheaper for larger businesses to raise capital
• banks consider giving loans to bigger companies as it is much riskier giving loans to smaller ones resulting in low interest rates being charged for the bigger companies

Question 5

How can large businesses benefit from managerial economies

Answer 5

large companies can afford specialist managers therefore reducing average costs and increasing efficiency

Question 6

How can large businesses benefit from technical economies

Answer 6

• specialist machines are used to produce items in a continuous flow
• transport costs are cut down by using larger vehicles