Economies Of Scale Flashcards
Types of economies of scale…
Purchasing- firms buy large amounts of raw materials ( bulk buying)
Technical economies of scale- larger firms can afford to buy more expensive high tech equipment- reducing average costs
Financial- large firms often can borrow money from banks at a lower interest rate as they are seen as less risky
This results in them being able to raise large amounts of finance
Economies of scale definition
A firm is experiencing economies of scale when the average cost of production is falling as output rises
Diseconomies of scale definition…
When The average cost is rising as output rises
The long run average cost curve shows…
The lowest possible cost per unit of output when all factors of production are variable
In the long run…
Firms are able to change all of their resources to find the optimal combination of resources
Internal definition
The cost benefits that occur within the firm as a result of its growth
Internal diseconomies of scale
Purchasing- wastage/loss, materials are in plentiful supply so may get mislaid within a large factory
Managerial- managers have less control over staff
More difficult to coordinate activities
