LS4- Economies and Diseconomies of Scale

Question 1

What is EoS?

Answer 1

When total costs rise at a slower rate than output.

Question 2

Types of internal EoS

Answer 2

Realy Fun Mums Try Making Pies

Question 3

Risk bearing

Answer 3

When risk is spread out over a larger output range, so lower average costs

Question 4

Financial

Answer 4

When lower interest rates are negotiated on loans from the bank as the firm is reputable, profitable and proven to be successful to more trustworthy.

Question 5

Managerial

Answer 5

As a firm gets larger they can employ specialist managers, monitor productivity and bring specialist skills. Productivity rises faster than their salary costs.

Question 6

Technical

Answer 6

When specialist machinery is used as firm gets larger, using the factory more efficiently to boost productivity.

Question 7

Marketing

Answer 7

Can bulk buy advertising, so negotiate a better unit rate of advertising.

Question 8

Purchasing

Answer 8

Firm is able to buy their raw material in bulk- which is cheaper per unit due to negotiated prices.

Question 9

External EoS

Answer 9

• Better transport infrastructure e.g. new roads/airports/rails
• Component suppliers move closer as you are a large firm suppliers want to be near
• R&D move closer so you can use it to improve tech and therefore efficiency
• Labour will come to the established area e.g. Silicon Valley

Question 10

In external EoS

Answer 10

Total costs fall, over the same output, so AC falls

Question 11

Diseconomies of scale

3 C’s and an M

Answer 11

• control
• communication
• coordination
• motivation