economies of scale Flashcards
1
Q
when do economies of scale arise?
A
when unit costs falls as output increases
2
Q
how to calculate unit costs?
A
total cost in period
—————————
total output in period
3
Q
how to calculate total costs?
A
fixed costs + total variable costs
4
Q
how to calculate cost per unit?
A
total costs
—————
total units
5
Q
what are main types of economies of scale?
A
- internal - arise form the increased output of the business itself
- external - occur within an industry (e.g. all competitors benefit)
6
Q
5 internal economies of scale?
A
- buying economies - buying bigger quantities usually results in lower price
- technical - use of specialist equipment or processes boost productivity
- marketing - spreading a fixed marketing spend over a larger range of products, market + customers
- network - adding extra customers or users to a network that is already established (e.g. phones)
- financial - larger firms benefit from access to more and cheaper finance
7
Q
3 external economies of scale?
A
- having many specialist suppliers close by
-access to research + development activities
-pool of skilled labour to choose from
