Economies of Scale and Efficient Market Structures

Question 1

Internal EofS

Answer 1

Economies of scale that arise within the firm as a result of growth, resulting in lower long run average costs. Moves AC down.

Question 2

External EofS

Answer 2

Economies of scale that arise from the growth of an industry and benefits firms within the industry, resulting in lower long run average costs. Moves AC down

Question 3

Purchasing EofS

Answer 3

When firms buy in bulk they can pay less for per unit purchased.

Question 4

Selling EofS

Answer 4

A larger firm can make better use of sales and distribution facilities. Cinema’s in advertising campaigns run costs over a large output (Marketing EofS)

Question 5

Technical EofS

Answer 5

A larger firm would be able to buy more high-tech and efficient equipment. Small cinema unlikely to open a huge multiplex, due to it being financially not viable.

Question 6

Financial EofS

Answer 6

Find it easier/cheaper to raise finance. More likely to give money to a large well known cinema and often charge ower interest, buyers of shares as well due to well known.

Question 7

Managerial EofS

Answer 7

With large firms they have more specialisation of employers, unlike small chains where few workers have more tasks to complete.

Question 8

Risk Bearing EofS

Answer 8

Greater output can get greater range of products, reducing the chance of a loss, should one product be a failure. Cinema, big firms won’t be affected if they show a poor film, significant for small firm.

Question 9

Internal DofS

Answer 9

Diseconomies of scale experienced by a firm caused by its growth. Moves AC up

Question 10

Effects of internal DofS

Answer 10

Can be hard to check production and large size with large tiers of management makes it difficult to make decision and respond to market conditions. Moves AC up

Question 11

External DofS

Answer 11

Diseconomies of scale resulting from the growth of the industry affecting firms within the industry. Moves AC up

Question 12

Effects of external DofS

Answer 12

Increased competition for resources driving up price, higher levels of pollution/traffic. Moves AC up.

Question 13

Market Structure definition

Answer 13

Level of competition in a market

Question 14

EffiMS Condition’s

Answer 14

Identical Product
Many small buyers/sellers
Firms price takers
Perfect knowledge
Free entry/exit

Question 15

Competitive Market Efficiency SR

Answer 15

Lots of competition, requirement to keep costs low, minimise wastage of scarce resources. Short run price is equal to MC, allocative eff maximising consumer welfare.

Question 16

Competitive Market Efficiency LR

Answer 16

Due to no supernormal profits firms cannot put money into R&D, no new products.

Question 17

Allocative/Productive Eff

Answer 17

Prices will fall, output rise until price = MC, allocative eff. Firms minimise ATC to keep profits up, productive eff.