Economies of Scale 3.2.1 Flashcards
What are the main reasons for a business wanting growth
- Increasing profits
- Achieve EOS
- Increase market power
- Increase market share and brand recognition
- Grow business and shareholder value
What are Economies of Scale
EOS arise when unit costs fall as output increases
What is the formula for av. cost per unit
Total production costs/ total output
What are internal economies of scale
arise from the increased output of the business itself
What are external economies of scale
occur within an industry : ie. all competitors benefit
What are the main types of internal economies of scale
- Purchasing
- Technical
- Managerial
What is purchasing EOS
Buying in greater quantities usually results in a lower price (bulk buying)
What is technical EOS
Use of specialist equipment or processes to boost productivity
What is managerial EOS
Specialist managers employed to help redduce unit cost
What are dis-economies of scale
No guarantee that unit costs will fall as the scale of a business’ operation rises. May be reasons why inefficiencies arise as a business gets larger
What are examples of Dis-economies of scale
Control- Problems in monitoring productivity and work quality, increasing wastage of resources
Cooperation- workers in large firms may develop a sense of alienation and loss of morale
