Economies of Scale + Diseconomies Flashcards
What is economies of scale based on
as output increases the unit cost decreases
Why does unit cost decrease
fixed cost spread over more units
What are the two types of EOS
Internal - the firms itself being efficient and minimising costs
External - like transport links and location
What are the individual aspects of internal EOS (9)
Technical - afford capital to boost productivity
Volume - Increase volume for transport
Purchasing - negotiate discounts buying in bulk
Division of labour - specialise
Financial - Borrow finance at low rate of interest because lower risk for banks
Managerial - employ specialist to lead specific parts
Marketing - reach the masses
Risk bearing - offering to more than one market
Research and development - sunk cost
What is diseconomies of scale
as business expands in the long run
unit cost of production increases
What might diseconomies of scale be a result of
less control of productivity
poor coordination/cooperation
What are examples of diseconomies of scale
office politics
risk aversion
waste/ineffeciency
rising costs and complexity
How do you avoid diseconomies of scale
get a HR team
have performance related pay schemes
