Economies of Scale

Question 1

Economies of Scale

Answer 1

Economies of Scale occur when average costs of a firm fall as firms increase output and size.

Question 2

Internal Economies of Scale - Factors within a business that increase output

Answer 2

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

Risk-bearing Economies - Occur when a business produces a range of products, not reliant on one, decreasing risks.

Managerial Economies - Occurs when a large firm can employ specialist workers to complete tasks and can spread the cost.

Financial Economies - Occurs when a large business can borrow money at a lower rate of interest compared to a smaller business.

Marketing Economies - Occurs when a business grows and the average cost of advertising per unit falls.

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

Purchasing Economies - Occurs when a business buys goods in bulk and benefits from a discount.

Question 3

External Economies of Scale - occur when there is a growth within the industry where the firm operates. List some examples:

Answer 3

People investing in the business

Skilled Workforce in the area

Infrastructure (Transport)

Taxation

Reputation of Area (Are they seen as a premium company? Can prices increase? Is the firm eco-friendly?)