LR Costs

Question 1

types of external economies of scale

Answer 1

cost benefits from an increase in the scale of an industry as a whole:

cluster effect-
if firms locate in a similar area, then this makes it more efficient for suppliers to meet a larger base of purchasers.
skilled labour pool- attracts skilled workers to area

share of R&D, technological spill over and collaboration between firms allows collective dynamic efficiency

Question 2

Effect of external economies of scale on LRAC

Answer 2

shifts downwards

Question 3

Types of internal economies of scale

Answer 3

Cost savings, reducing LRAC due to growth of a firm itself

Purchasing - bulk buying, lower unit costs

Technical- allow purchase of bigger better more efficient capital

Financial- larger firm= less risky, lower interest rate- lower cost

Managerial- able to employ specialist managers higher labour productivity better organisation of firm