Economies of scale and scope

Question 1

What are economies of scale?

Answer 1

Economies of scale arise when unit costs fall as output increases

Question 2

What is the calculation for unit costs?

Answer 2

Total production costs in period/Total output in period

Question 3

What are internal economies of scale?

Answer 3

Arise from increased output of the business itself

Question 4

What are external economies of scale?

Answer 4

Occur within an industry. Eg. all competitors benefit

Question 5

What are economies of scope?

Answer 5

Occur where it is cheaper to produce a range of products rather than specialize in a very limited number

Question 6

What are diseconomies of scale?

Answer 6

There is no guarntee unit costs will fall as the business gets bigger

Question 7

What are the 3 types of internal economies of scale?

Answer 7

• Technical
• Purchasing
• Managerial

Question 8

What is technical/How does it work?

Answer 8

Cost savings a firms makes as it grows bigger from the use of large machinery to boost productivity

Question 9

What is purchasing/How does it work?

Answer 9

As a result of the size of the business increasing, bulk buying results in lower prices.

Question 10

WHat is managerial/How does it wrok?

Answer 10

Specialist managers can be employed to help reduce unit costs and boost efficiency