economies of scale

Question 1

what are economies of scale

Answer 1

Economies of scale refer to the reduction in average costs of production that occur as a business increases its scale of production.

Question 2

what are internal economies of scale

Answer 2

reductions in average cost per unit of output due to increasing internal efficiencies within the business

Question 3

what are examples of internal economies of scale

Answer 3

• managerial: specialised staff improve efficiency and reduce average costs

-Purchasing – as businesses grow, they increase the
size of orders for raw materials or components – this may then result in discounts being given and the cost of each individual component purchased will fall.

• Technical: Larger firms can invest in advanced machinery, technology, and production techniques, increasing efficiency and reducing unit costs.

Question 4

what are external economies of scale

Answer 4

External economies of scale refer to advantages that benefit an entire industry, not just one business

Question 5

What are types of external economies of scale?

Answer 5

• Financial economies – financial services can improve, with banks and other financial institutions providing services that may be particularly geared towards a particular
  industry
• educational economies of scale: Local colleges offer training tailored to industry needs, reducing recruitment and training costs.
• Industry Clustering: When many firms in the same industry are located in the same area, businesses benefit from shared resources, suppliers, and a skilled labor pool.

Question 6

what are diseconomies of scale?

Answer 6

Diseconomies of scale occur when a business becomes too large, leading to higher costs per unit of output due to inefficiencies in managing the larger scale of operations.

Question 7

What are external diseconomies of scale?

Answer 7

External diseconomies of scale occur when the growth of an industry or region leads to increased costs for businesses within it, due to factors outside the control of individual firms.
e.g. resource scarity, labour shortages

Question 8

What causes overcrowding in industrial areas and how does it affect businesses?

Answer 8

Overcrowding leads to traffic congestion, resulting in late deliveries and employee delays. This can harm public relations and increase operational costs.

Question 9

How do increased prices of resources impact businesses in growing industries?

Answer 9

As more businesses enter an area, demand for labor, land, and materials increases, making these resources more expensive and harder to acquire.