Economies Of Scale Flashcards
Financial Economies of Scale
Large firms can benefit from cheaper loans and wider sources of cheap finance (investment from shareholders). Small businesses are perceived as being riskier than larger businesses that have developed a good track record.
Marketing EOS
The advantages that large firms get in relation to buying and selling. Large firms can attract specialist buyers who don’t waste money buying stock that will not sell. They also have specialist sellers/marketing staff who ensure that goods will sell. Big firms benefit significantly from being able to “buy in bulk”. As a business gets larger, it is able to spread the cost of marketing over a wider range of products and sales – cutting the average marketing cost per unit.
• So for example a larger business may have an extensive portfolio or products but may choose to just market the corporate brand name e.g. Nestle not KitKat
Technical Economies of Scale
These are the advantages that large firms have when it comes to the production process. Large firms can employ specialist labour and capital which stimulates productivity and reduces average costs
Managerial EOS
Large firms have the money/resources to attract the most productive/efficient/specialist managers who make the most effective business decisions and increase efficiency over time
Risk-bearing EOS
Large firms benefit from having wider, more diversified product range. This means that they are better able to withstand the risk of a fall in demand for one good or service
Disadvantages of DEOS-lack of motivation
Means increased absenteeism and lateness • Reduction in productivity• Lower output per worker• increased unit costs
Disadvantages of DEOS/ Co-ordination
As a company grows and takes on new staff, makes new products buys new premises all of this needs to be coordinated so operations can run smoothly. Workers may need monitoring which can add to costs
• May need more managers which increases average cost per unit
