Economies of Scale Flashcards
What are economies of scale?
An increase in size of the business allows it to become more efficient, reducing unit costs and increasing labour productivity.
What’s the difference between internal and external economies of scale?
Internal arise from the increased output of the business itself, whereas external occur within an industry, i.e. all competitors benefit.
What are the different types of internal economies of scale?
- buying economies
- technical
- marketing
- network
- financial
What are buying economies of scale?
buying in greater quantities usually results in a lower price (bulk-buying).
What are technical economies of scale?
Use of specialist equipment/processes to boost productivity.
What are marketing economies of scale?
Spending a fixed marketing spend over a larger range of products, markets, and customers.
What are network economies of scale?
Adding extra customers or uses to a network that is already established (eg mobile phones).
What are financial economies of scale?
Larger firms benefit from access to more and cheaper finance.
What are examples of external economies of scale?
- having many specialist suppliers close by.
- access to research and development facilities.
- pool of skilled labour to choose from.
What are examples of technical economies of scale?
- improves efficiency.
- mass production.
- better training for technicians.
- transportation reduced if large.
- better computer and communication systems.
How does specialisation link to economies of scale?
- more money for skilled workers (training + salaries).
- able to adapt production technique.
- continuous efficiency.
How can economies of scale benefit marketing?
- more money for advertsing and marketing.
- more effective: reduce unit costs.
- better understanding of markets.
What are some examples of financial economies of scale?
- more chance of loans.
- lower interest rates.
- easier access to funds.
What are the social benefits of economies of scale?
- provide social facilities and benefits.
- more opportunity to increase morale and recruit.
