Economies of Scale

Question 1

what is an economy of scale?

Answer 1

a proportionate reduction in costs gained by an increased level in production.

Question 2

what are the 6 economies of scale?

Answer 2

1. financial
2. managerial
3. technical
4. purchasing
5. marketing
6. risk bearing

Question 3

define purchasing economies

Answer 3

occurs when a business buys goods in bulk and benefits from the discount. (in short, larger imports - less money.)

Question 4

define managerial economies

Answer 4

occurs when a large firm can employ specialist workers to complete tasks and can spread the cost.

Question 5

define financial economies

Answer 5

occurs when a large business can borrow money at a lower rate of interest than a smaller business.

Question 6

define technical economies

Answer 6

occurs when a business invests in new technology and is able to increase production. As a result, production costs per unit will fall.

Question 7

define risk-bearing economies

Answer 7

occurs when a business produces a range of products, which means it is not dependent on just one product.

Question 8

define marketing economies

Answer 8

occurs when a business grows and the average cost of advertising per unit falls.