Economies of scale Flashcards
1
Q
What is Economies of scale (EOS)?
A
The reduction in average costs that a firm experiences as a result of increased output, as costs are spread over more units.
2
Q
What are types of EOS?
A
- Purchasing (Bulk buying etc.)
- Technical (Larger production scale, can use large machinery)
- Managerial (Hire specialised staff who make higher quality decisions)
- Financial (Easier/less expensive to get financing)
- Marketing (spread costs)
- Risk bearing (Spread risk through investments
3
Q
What are some benefits of EOS?
A
- Gives you higher profit per item sold
- Gives you the ability to reduce price if needed to undercut the competition.
4
Q
What are some reasons for DEOS?
A
- Communication errors
- Coordination problems
- Control issues
