expanding businesses#

Question 1

what is economies of scale

Answer 1

when the average unit cost falls

Question 2

what are the 2 reasons economies of scale happens

Answer 2

purchasing economies of scale
technical economies of scale

Question 3

what is purchasing economies of scale

Answer 3

this happens when large firms buy its supplies in bulk so gets them at a cheaper unit price than small firm

Question 4

what is technical economies of scale

Answer 4

when large firms can afford to buy and operate more advanced machinery than smaller firms

Question 5

what benefits does lower average unit costs have

Answer 5

firms can make more profit on each item they sell
means firms can afford to charge their customers less than smaller firms leading to more sales.

Question 6

what are diseconomies of scale

Answer 6

increase in average unit costs

Question 7

how can diseconomies of scale happen and what does it cause

Answer 7

the bigger the firm the harder and more expensive it is to manage properly
harder to communicate, decisions take longer, workers can feel insignificant at the bottom of the hierarchy leading to a decrease in motivation