Economies of Scale

Question 1

What are the types of economies of scale?

Answer 1

1. Technical
2. External
3. Risk Bearing
4. Specialisation
5. Financial
6. Purchasing
7. Managerial

Question 2

What are technical economies of scale?

Answer 2

Substantial requirements for a factor of production with high fixed costs e.g. building a large car factory (land), purchasing automatic robot arms for manufacturing (capital)

Question 3

What are external economies of scale?

Answer 3

When firms benefit from the whole industry getting bigger. E.g. firms will benefit from better infrastructure

Question 4

What are risk bearing economies of scale?

Answer 4

Some investments are very expensive and perhaps risky. Therefore only a large firm will be able and willing to undertake the necessary investment

Question 5

What are specialisation economies of scale?

Answer 5

In large scale operations workers can do more specific tasks. With little training they can become very proficient in their task, this enables greater efficiency

Question 6

What are financial economies of scale?

Answer 6

A bigger firm can get a better rate of interest than small firms

Question 7

What are purchasing economies of scale?

Answer 7

Larger businesses more readily have the cash and output to warrant buying materials in much larger quantities, which can bring them per-unit cost advantages

Question 8

What are managerial economies of scale?

Answer 8

When large firms can afford specialists who more effectively manage particular areas of the company

Question 9

What is OUR acronym for economies of scale?
(Herny you are a knob)

Answer 9

PMTERFS