Economies of scale

Question 1

Economies of scale will generate

Answer 1

Lower cost per unit

Question 2

Diseconomies of scale

Answer 2

As you produce more, your average cost per unit increases
output increases
Cost per unit decreases

Question 3

Economies of scale

Answer 3

Eonomies of scale are the opposite of diseconomies of scale. They
occur when a company experiences a decrease in average cost as the
total output increases.
Output INCREASES
Cost per unit DECREASES

Question 4

3 main reasons for diseconomies of
scale

Answer 4

 managerial diseconomies of scale
 communication failure
 motivational diseconomies of scale.

Question 5

two types of diseconomies of scale

Answer 5

internal diseconomies of scale - caused by factors WITHIN the

firm
external diseconomies of scale – caused by factors OUTSIDE
the firm

Question 6

3 Internal diseconomies of scale

Answer 6

Communication diseconomies: Poor communication between

different departments
Motivational diseconomies: Lack of staff morale and lack of
motivation (the main reason)
Managerial diseconomies: Less control, direction and coordination
of human resources as your workforce gets larger

Question 7

3 types of external diseconomies of
scale

Answer 7

A. Being unable to purchase stocks at a discounted price
B. Traffic congestion in busy locations causing delays to
delivery of important stocks in
C. Advertising costs to a global audience

Question 8

If a firm doubles inputs but outputs
increase by 50% then what has it
experienced

Answer 8

Diseconomies of scale

Question 9

If a firm doubles inputs and outputs
increase by 200% then what has it
experiences

Answer 9

Eos

Question 10

If a firm increases its use of all factors
of production but sees an increase in
its average costs, this is a sign of

Answer 10

Internal diseconomies of scale

Question 11

What generally causes diseconomies
of scale ?

Answer 11

Managerial failings
Ie The difficulties or complexities of managing a large business - not
all growth means more profitability

Question 12

Economies of scale will generate

Answer 12

Lower cost per unit

ie as you produce more the average cost of each unit decreases

Question 13

Diseconomies of scale

Answer 13

As you produce more, your average cost per unit INCREASES

Diseconomies of scale occur when a firm experiences an increase in its
average costs per unit as its total output increases.
Output INCREASES
Cost per unit INCREASES

Question 14

Economies of scale

Answer 14

Eonomies of scale are the opposite of diseconomies of scale. They
occur when a company experiences a decrease in average cost as the
total output increases.
Output INCREASES
Cost per unit DECREASES

Question 15

3 main reasons for diseconomies of
scale

Answer 15

 managerial diseconomies of scale
 communication failure
 motivational diseconomies of scale.

Question 16

two types of diseconomies of scale

Answer 16

internal diseconomies of scale - caused by factors WITHIN the

firm
external diseconomies of scale – caused by factors OUTSIDE
the firm

Question 17

3 Internal diseconomies of scale

Answer 17

Communication diseconomies: Poor communication between

different departments
Motivational diseconomies: Lack of staff morale and lack of
motivation (the main reason)
Managerial diseconomies: Less control, direction and coordination
of human resources as your workforce gets larger

Question 18

3 types of external diseconomies of
scale

Answer 18

A. Being unable to purchase stocks at a discounted price
B. Traffic congestion in busy locations causing delays to
delivery of important stocks in
C. Advertising costs to a global audience

Question 19

If a firm doubles inputs but outputs
increase by 50% then what has it
experienced

Answer 19

Diseconomies of scale

Question 20

If a firm doubles inputs and outputs
increase by 200% then what has it
experiences

Answer 20

cos

Question 21

If a firm increases its use of all factors
of production but sees an increase in
its average costs, this is a sign of

Answer 21

Internal diseconomies of scale

Question 22

What generally causes diseconomies
of scale ?

Answer 22

Managerial failings
Ie The difficulties or complexities of managing a large business - not
all growth means more profitability

Question 23

Explain managerial failings can cause
diseconomies of scale

Answer 23

When you have large corporations, you have many people in a
company
Means you have to hire different managers for different positions
and different divisions of the company. It becomes hard to manage
the entire personnel
Some managers could make decisions that are not in the firm's
best interest.

Question 24

Explain how communication failings
can cause diseconomies of scale

Answer 24

Failure in communication is another reason why firms experience
diseconomies of scale.
Common amongst large companies.
When a firm grows, the layers between the top management and
the staff grows.
Workers in production may be far from management, and there
might not be enough communication in between management and
the workers.

Question 25

Explain motivation diseconomies of
scale

Answer 25

This is an INTERNAL diseconomy
Some companies are unable to keep their worker’s
motivation up for every single worker. That could be for
many reasons such as
- it is costly for a company to offer bonuses and
incentives to all workers.
- it is hard for companies to pay competitive wages to
every worker.

Question 26

What type of diseconomies does a
firm with organisational challenges
have

Answer 26

INTERNAL diseconomies
Managerial, motivational and communication failings cause
diseconomies

Question 27

What type of diseconomies does a
firm in the centre of a busy city have

Answer 27

EXTERNAL diseconomies – traffic congestion may cause delays in
delivery of stocks to the business holding up production – staff have
down time while they wait for inputs.

Question 28

How does price inelasticity of supply
affect diseconomies of scale?

Answer 28

Inputs with price inelasticity of supply are also a reason for
external diseconomies of scale. Imagine a firm experiences
significant growth in demand, and as a result, it needs to produce
more output. However, those supplying the input for the firm can’t
increase the total output by as much as the price increase. This
means that the firm will be paying more but not getting as many
inputs, which then causes diseconomies of scale.

Question 29

What is a sign of growth in a business

Answer 29

Producing more units

Producing more goods or services
Growth is not about profitability – sometimes growth means
diseconomies of scale.

Question 30

What does a takeover of a successful
business to form a new company
always cause?

Answer 30

GROWTH

Question 31

When a firm grows what happens to
its unit costs

Answer 31

They can rise OR fall

Question 32

What are purchasing economies
(economies from purchasing)

Answer 32

When a company buys in bulk and at a discount
ie it gets cheaper per unit the more you buy