Economies Of Scale Flashcards
Internal economies of scale
Arise form the increased output of the business itself
External economies of scale
Occur within an industry (ie all competitors benefit)
Examples of internal economies of scale
Buying economies / purchasing
Technical
Marketing
Network
Financial
Managerial
Risk-bearing
Buying economies / purchasing
Buying in greater quantities usually results in a lower price (bulk-buying)
Technical economies of scale
Use of specialist equipment or processes to boost productivity
Marketing economies of scale
Spreading a fixed marketing spend over a larger range of products, markets and customers
Network economies of scale
Adding extra customers or users to a network that is already established (eg mobile phones)
Financial economies of scale
Larger firms benefit from access to more and cheaper finance
Managerial economies of scale
Large firms are able to employe specialist managers, which can allow them to operate more effectively.
Risk-bearing economies of scale
Larger firms can spread risk by diversifying into different products. They may even expand by taking over suppliers. This allows firms to reduce their costs.
Examples of external economies of scale
Concentration economies
Information economies
Concentration economies of scale
Firms benefit as an industry grows in a specific region because skilled labour tends to move to that area.
Information economies of scale
Firms can benefit as information services are set up for the benefit of the industry.
This could be access to data or market research that has been collected for whole industries, making it cheaper for individual firms to access information.
Diseconomies of scale
An increase in unit costs as a result of an increased scale of production
Examples of diseconomies of scale
Communication problems
Problems in managing the production process
Reduction in morale
