Economies of Scale Flashcards
What are economies of scale?
The reduction of average costs as the scale of production increases. Total costs increase as output increases however cost of production per unit falls which means business is benefitting from economies of scale giving businesses a competitive leverage over smaller businesses
What are the different type of internal economies of scale?
Purchasing, managerial, technical, financial and marketing
Purchasing economics of scale
Large scale of production means a greater amount of raw materials and components needed which may led to discounts being given therefore the price of each component will fall therefore reduce average cost of production.
Technical economies of scale
As business grows they are able to afford the latest technologies and in corporate new methods leading to increased efficiency and productivity.
Managerial economics
As the business will be able to afford or which will ensure the business gets the best for each pound spent wether it is in marketing, production or purchasing. Which will increase efficiency and reduce average cost of goods
Financial economics
As business grows it will have access to wider range of finance as they have more assets which act as security for loans and also are able to negotiate favourable interests on money borrowed
Marketing economies
As business grows money spent on advertising will have greater benefit for business
