Economies Of Scale (Quick Revision)

Question 1

Define: Economies Of Scale

Answer 1

Economies of scale occurs when unit costs decrease as output increases.

Question 2

State three types of economy of scale.

Answer 2

• Purchasing
• Technical
• Specialisation

Question 3

If a firm gets too big, it might experience d……………… of scale. Give an example.

Answer 3

Diseconomies; this may occur due to:

• Loss of control
• Poor communication
• Coordination problems

Question 4

How can economics of scale improve a firm’s competitiveness?

Answer 4

Can enable the firm to lower prices and offer better value for money

Question 5

When a firm experiences economies of scale, its total costs increase. True or false? Explain.

Answer 5

True;

The cost per unit falls, but the total costs rise.

Question 6

What is the Examiner’s note for Economies Of Scale?

Answer 6

Economies of scale occur when a firm changes the scale of its operations (e.g. opens a new factory l). If a girl is simply producing more within it’s existing facilities, it is increasing its capacity utilisation.

Question 7

What is the Evaluation point for Economies Of Scale?

Answer 7

Economies of scale can help a firm achieve productive efficiency, but in itself this does not guarantee success l. Success also depends on marketing and external factors such as the degree of competition.