Economies of scale

Question 1

Define economies of scale

Answer 1

Occurs when an increase in the scale of production leases to production at a lower average cost

Question 2

Define internal economies of scale

Answer 2

Economies of scale that occur from the expansion of the given firm

Question 3

Define external economies of scale

Answer 3

Economies of scale arising from the expansion of industry and infrastructure in the area that the given firm is operating in.

Question 4

3 examples of internal economies of scale

Answer 4

Purchasing economies of scale- bulk buying components to lower average costs

• managerial economies of scale- delegating teams and business areas to specialist managers eg finance, customer service
• Technical economics of scale- improving technology and encouraging specialisation to produce at a lower average cost eg production lines

Question 5

2 examples of external economies of scale

Answer 5

• Skilled labour- setting up industry in areas with lots of skilled labour or colleges offering courses to provide relevant qualifications. Also larger pools of workers for large firms decrease training costs
• Regional capital- public transport developments in an area of a big firm to allow easy access for potential workers. Suppliers locating in areas near relevant businesses, reducing transport costs