EOS & DEOS Flashcards
Describe the EOS graph.
- U shape
- y axis=Average costs £
- x axis=Output
- bottom middle of U is minimum efficient scale (lowest cosyt but highest output point)
- up to minimum efficient scale EOS
- past minimum efficient scale DEOS
State 3 external EOS
- labour
- co-operation
- disintegration
State 6 internal EOS.
- purchasing
- managerial
- production/technological
- risk bearing
- financial
- marketing
Define diseconomies of scale.
The increase in unit costs that results from producing on a larger scale.
Give 3 internal DEOS.
- communication
- coordination
- motivation
State an external DEOS.
-congestion
What is labour EOS?
- external
- build up of labour with the right skills & qualifications for the industry
- training costs can be reduced if a worker is trained at another firm
- local schools, colleges, councils and universities can also help with the training of these skills
What is co-operation?
- external
- firms in the same industry tent to join if they are concentrated in the same region
- they can join forces to fund an R&D project etc.
What is disintegration?
- external
- when production is broken up so specialisation can take place
- firms situated in a concentrated area might specialise in making one unit and then transport it to another to have it assembled etc.
What is purchasing EOS?
- internal
- buy components & materials more cheaply
- advantage of bulk discounts
What is managerial EOS?
- internal
- The use of specialist managers in order to reduce average costs by increasing efficiency and reducing costs.
What is production/technological economies?
- internal
- through the use of mass production techniques
- speeds up production & reduces unit costs
e. g. using a production line with machines decreases labour costs & therefore unit costs.
What is risk-bearing economies?
- internal
- larger firms can afford to take risks when launching new products & even sustain losses to a degree
What is financial EOS?
- internal
- larger enterprises can borrow more easily
- borrow @ better rates of interest (better reserves & assets)
- less risk for banks/financial institutions
e. g.small investment firm borrows £50,000 from a bank at 3% = £51,500. Larger investment firm borrows £50,000 at 1%=£50,500 total repayment.
What is marketing EOS?
- internal
- reduce costs because firms can afford to advertise extensively
- extra cost is small when spread over many units of output
What is communication DEOS?
- internal
- when the firm grows people may not know who to report to
- large organisational structures
What is coordination DEOS?
- internal
- managers may experience difficulties ensuring that large numbers of diverse employees pursue common goals
What is motivation DEOS?
- internal
- this can suffer if a worker becomes a tiny part of a large workforce
- lack of recognition & poor relations between the managers & workers
What is congestion DEOS?
-external
These can occur from overcrowding in industrial areas. The price of land, labour, capital, materials and services might rise as firms compete for a limited amount. Congestion can lead to inefficiency as travelling workers & deliveries are delayed.
Define economies of scale.
When average or unit costs of production fall as output is increased.
