Economies Of Scale Flashcards
examples of internal economies of scale
Technical EOS Purchasing EOS Managerial EOS Financial EOS Risk bearing EOS Marketing EOS
what is technical EOS
production line reduces average costs
specialised equipment reduces costs
containerisation reduces costs
what is purchasing EOS
bulk buying
discounts for larger firms
what is managerial EOS
specialist managers
what is financial EOS
borrow money at a lower interest rate
what is risk bearing EOS
larger firms can diversify into different product areas
what is marketing EOS
advertising is a fixed cost, so cost per unit falls
larger firms from brand awareness
define economies of scale
occur for a firm when an increase in the scale of production leads to production at lower long run average costs
what are internal economies of scale
EOS that arise from the expansion of a firm
what are external EOS
arise from the expansion of the industry in which a firm is operating
examples of external EOS
more skilled labour- larger pool of skilled labour so more cost effective
More regional capital- may improve infrastructure in local area of firm, or suppliers locating near larger firms to reduce transport costs
examples of internal diseconomies of scale
control- managers find it harder to control what workers do
coordination- managers find it harder to coordinate the activities of workers due to communicating with many people
cooperation- loss of moral if workers arent listened to
examples of external diseconomies of scale
increasing costs of factor inputs- increased demand leads to increased prices
exhausted local suppliers- local suppliers may run out of products due to bulk buying increasing transport costs
