Expanding Businesses Flashcards
What is Economies of Scale?
When the average unit cost of each product falls
What is Purchasing Economies of scale?
When a large firm buys its supplies in bulk and gets them at a cheaper unit price than a small firm.
What is Technical Economies of Scale?
a large firm can afford to buy and operate more advanced machinery than smaller firms.
What does it mean if average unit cost is low?
firms make more profit on each item they sell.
can afford to charge their customers less for products.
profits can be reinvested into business so it can expand even more.
How can growth increase risk of diseconomies of scale?
The bigger the firm, the harder and more expensive it is to manage it properly.
Harder to communicate within company
Workers get demotivated
Production process may become more complex.
