Economies of scale Flashcards
What are the seven economies of scale?
Managerial, Technical, Labour, Purchasing, Marketing, Financial, and Risk Bearing.
What is Managerial economies of scale?
When small, owner-run businesses get bigger and hire more specialist managers, cost per unit of output will fall.
What are technical economies of scale?
When average unit costs fall due to investment into machinery. This can be because labourers can be expensive, or because machinery manages a higher output in a certain amount of time.
What are purchasing economies of scale?
Buying in bulk to lower the price per unit of an item.
What are marketing economies of scale?
Spreading an advertising budget on something large rather than individually, e.g an advert on TV worked out at cost per viewer would be considered cheaper than localised promotions.
What are financial economies of scale?
Increasing scale of production to become more efficient, reducing cost per unit.
What are risk-bearing economies of scale?
Firms that operate in multiple markets and are able to take risks because of this. Profits are able to be spread and reinvested over different markets.
What are labour economies of scale?
As a business grows, its able to pay better wages and hire more specialised workers/ train them. This increases efficiency of labour and output per head.
What are diseconomies of scale?
When a business grows so large that costs per unit increase.
