EOS & DEOS

Question 1

Describe the EOS graph.

Answer 1

• 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

Question 2

State 3 external EOS

Answer 2

• labour
• co-operation
• disintegration

Question 3

State 6 internal EOS.

Answer 3

• purchasing
• managerial
• production/technological
• risk bearing
• financial
• marketing

Question 4

Define diseconomies of scale.

Answer 4

The increase in unit costs that results from producing on a larger scale.

Question 5

Give 3 internal DEOS.

Answer 5

• communication
• coordination
• motivation

Question 6

State an external DEOS.

Answer 6

-congestion

Question 7

What is labour EOS?

Answer 7

• 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

Question 8

What is co-operation?

Answer 8

• 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.

Question 9

What is disintegration?

Answer 9

• 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.

Question 10

What is purchasing EOS?

Answer 10

• internal
• buy components & materials more cheaply
• advantage of bulk discounts

Question 11

What is managerial EOS?

Answer 11

• internal

- The use of specialist managers in order to reduce average costs by increasing efficiency and reducing costs.

Question 12

What is production/technological economies?

Answer 12

• 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.

Question 13

What is risk-bearing economies?

Answer 13

• internal

- larger firms can afford to take risks when launching new products & even sustain losses to a degree

Question 14

What is financial EOS?

Answer 14

• 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.

Question 15

What is marketing EOS?

Answer 15

• internal
• reduce costs because firms can afford to advertise extensively
• extra cost is small when spread over many units of output

Question 16

What is communication DEOS?

Answer 16

• internal
• when the firm grows people may not know who to report to
• large organisational structures

Question 17

What is coordination DEOS?

Answer 17

• internal

- managers may experience difficulties ensuring that large numbers of diverse employees pursue common goals

Question 18

What is motivation DEOS?

Answer 18

• internal
• this can suffer if a worker becomes a tiny part of a large workforce
• lack of recognition & poor relations between the managers & workers

Question 19

What is congestion DEOS?

Answer 19

-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.

Question 20

Define economies of scale.

Answer 20

When average or unit costs of production fall as output is increased.