Economies of Scales

Question 1

What is the definition of economies of scale?

Answer 1

when a greater output leads to lower average costs and increased efficency

Question 2

What are internal economies of scale?

Answer 2

when a firm reaches lower average costs by increasing its own output

Question 3

What are external economies of scale?

Answer 3

when a firm benefits from a whole industry getting bigger

Question 4

Name 6 different types of internal economies of scale

Answer 4

1. risk bearing
2. managerial
3. bulk buying
4. technical
5. financial
6. marketing

Question 5

Describe risk bearing economies of scale

Answer 5

bigger firms can diversify into different areas to avoid economic downturn

Question 6

Describe managerial economies of scale

Answer 6

when firms can afford to hire specialist managers due to workers preforming specific tasks

Question 7

Describe bulk buying economies of scale

Answer 7

when average costs fall due to buying resources in large quantities

Question 8

Describe technical economies of scale

Answer 8

larger firms would benefit from new technology

Question 9

Describe marketing economies of scale

Answer 9

large scale advertisement is more efficient for larger firms, they would also have lower average costs

Question 10

Describe financial economies of scale

Answer 10

a bigger firm can get a better rate of interest when borrowing from banks

Question 11

What is the definition of diseconomies of scale?

Answer 11

when increased output leads to higher average costs

Question 12

Name 3 reasons diseconomies of scales may occur

Answer 12

1. difficulties communicating
2. in larger firms workers can slack off easier
3. workers become alienated in highly specialized jobs and lose motivation