Economies of Scale Flashcards
What is economies of scale
Advantages a business has due to the size of the company
Name internal economies of scale
Financial
Marketing
Technical
Financial economies of scale
- Allows to borrow with less interest
- larger loans
Marketing economies of scale
- advertising costs less
- more inventive techniques can be used
Technical economies of scale
reductions in average costs of production due to the use of more advanced machinery.
Name external economies of scale
Transportation
Skilled labour
Research
Transportation economies
better communication system for all. Rail, road facilities become available to all, the transport system reduces cost.
Skilled labour economies
skilled labour is available to all the firms because people living in the nearby areas get technical training.
Research economies
In local industry, research and development are centralized. Each individual firm needs not to spend a separate amount on research and development. They benefit from common pool.
Benefits of each internal economies of scale
Financial - Can operate more easily as they have more capital to work with and more time to pay the loan off
Marketing - Can make use of more effective and targeted advertising with more resources
Technical - Can improve efficiency of production
Benefits of each external economies of scale
Transportation - Can send more goods through the supply chain
Skilled labour - Less of a workforce is needed and delegation is easier
Research - New and innovative products can be made
Disecomonies of scale
When business grows and costs rise
Reasons for diseconomies of scale
- Communication problems
- Alienation of the workforce
- Poor coordination and decision-making
Problems caused by diseconomies of scale
Poor management
Lack of coordination between departments
Lack of workforce motivation
How do small firms survive?
Demand
What industry they are in
Help from big businesses
