Economies of scale

Question 1

What are economies of scale

Answer 1

When the total cost of producing each unit falls as output increases

Question 2

In the short run what are costs like
In the king run what are cost like

Answer 2

Both variable and fixed
Variable

Question 3

What are the 2 main groups of economies of scale

Answer 3

Internal and external

Question 4

Identify internal economies of scale

Answer 4

1 purchasing
2 financial
3 marketing
4 managerial
5 technical

Question 5

Describe purchasing economies

Answer 5

As a business grows they increase the size of orders of raw materials can result in a discount and reduce cost of production

Question 6

Describe technical economies

Answer 6

As a business grows it can purchase lastest equipment and adopt new methods - increases effefficiency and productivity reducing output costs

Question 7

Describe financial economies -

Answer 7

As business grows they will have wider access to a range of finance and as assets grow they offer more security to borrow - so larger businesses can negotiate more favour able rates

Question 8

Describe managerial economies

Answer 8

As business grows they can employ specialist manager who know how to get the best value , increasing efficiency and reduce costs

Question 9

Describe marketing economies

Answer 9

As the business grows each £ spent on advertising will have greater benefit

Question 10

What are external economies of scale

Answer 10

1 financial services
2 supplier
3 educational

Question 11

Describesupplier economies

Answer 11

A network of suppliers may be attracted to an area where a particular industry is growing- setting up locally of supplier businesses in competition with others reduces buyer costs

Question 12

Describe educational economies

Answer 12

Colleges set up training courses to suit large employer- reduces recruitment and trining costs

Question 13

Describe financial economies

Answer 13

Financial services can improve with financial institutions and gear services towards an industry

Question 14

Why are the above economies of scale regarded as quantitative in nature

Answer 14

They can be measured using financial methods

Question 15

What are diseconomies of scale

Answer 15

Factors that cause higher cost per unit when the scale of an organisation continues to increase

Question 16

What is the result of diseconomies of scale

Answer 16

Average cost of products rise with output

Question 17

List internal economies of scale

Answer 17

1 co ordination issues - larger an organisation the more difficult it is to co ordinate , more delegation, more management meetings needed
2 communication issues - as business grows the levels of hierarchy increases, communication can be less effective and efficient which leads to misunderstandings may lead to increase costs
3 motivation issues - larger businesses it is harder to motivate workers as many feel ignored as distanced from decision mkakers

Question 18

List external diseconomies of scale

Answer 18

1 overcrowding in industrial areas - traffic congestion results in late deliveries, staff arrive late, local residents resentful
2 increased price of resources - more business in the area mean more demand for labour and makes recruitment harder

Question 19

How does economies of scale effect stake holders

Answer 19

1 consumers benefit from fall of business costs if they are reflected in lower prices
2 shareholders benefit if business prospers as their shares increase
3 some businesses grown and have eliminated competition
4 suppliers are under pressure to provide cheaper goods

Question 20

What helps a small business who are unlikely to benefit from economies of scale survive (small local businesses)

Answer 20

1 target market size
2 population density
3 quality of service
4 customer loyalty
5 niche markets.