Economies of scale

Question 1

Internal-Marketing

Answer 1

A large firm can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market.

Question 2

Internal-Managerial

Answer 2

Large-scale manufacturers employ specialists to supervise production systems, manage marketing systems and oversee human resources.

Question 3

Internal-Financial

Answer 3

Larger firms are usually rated by the financial markets to be more ‘credit worthy’ and have access to credit facilities, with favourable rates of borrowing.

Question 4

Internal-Network

Answer 4

The extra cost of adding one more user to the network is close to zero, but the resulting benefits may be huge because each new user to the network can then interact, trade with all of the existing members or parts of the network.

Question 5

External- industry

Answer 5

• Development of research and development facilities in local universities that several businesses in an area can benefit from.
• Spending by a local authority on improving the transport network for a local town or city.
• Relocation of component suppliers and other support businesses close to the main centre of manufacturing are also an external cost saving.