Economies Of Scale

Question 1

What is meant by internal economies of scale

Answer 1

A fall in LRAC with an increase in output. Economies of scale relates to the log run only. Law of diminishing marginal returns relates to the short term.

Question 2

What are the different internal economies of scale? (FRIMMBT)

Answer 2

FINANCIAL, able to borrow at a cheaper rate. RISK BEARING, as firms grow firms are able to develop a range of products and wider consumer base. MARKETING, marketing costs work out cheaper as output increases. MANAGERIAL, big firms employ the best managers. INCREASED DIMENSIONS, doubling the length, height, width of a container increases volume by 8 times. BULK BUYING, more u order cheaper u get.TECHNOLOGICAL, as technology improves production can become more efficient

Question 3

What is meant by external economies if scale?

Answer 3

External economies of scale have an impact on the entire industry and therefore lower the LRAC.

Question 4

What are different types of external economies of scale.

Answer 4

Retailers close to each other can all benefit from improved infrastructure. An industry may benefit as a result of innovations produced by other firms.

Question 5

What is the minimum efficient scale

Answer 5

The point at which on the LRAC, where economies of scale have been exhausted.

Question 6

What is meant by dis economies of scale?

Answer 6

Where average costs rise as output increases.

Question 7

What are some reasons for dis economies of scale?

Answer 7

1) breakdown in communication 2)managerial difficulties resulting in arguments
3) lack of engagement