Operations Management-economies/diseconomies of scale

Question 1

Why do businesses grow?

Answer 1

To achieve greater profits
Increase market share
Increase chance of survival
Reduce costs

Question 2

What are the types of growth?

Answer 2

Internal(organic)-natural growth over time

External-takeover/merger

Question 3

Define capacity

Answer 3

Maximum that a firm can produce in a given period with the available resources

Question 4

Define capacity utilisation

Answer 4

% of the total capacity that is actually being achieved in a given period

Question 5

Define economies of scale

Answer 5

A reduction in unit costs achieved as the scale of production increases

Question 6

What are some examples of internal economies of scale?

Answer 6

Purchasing economies 
Financial economies 
Managerial economies 
Technical economies 
Marketing economies 
Risk-bearing economies

Question 7

What are some examples of external economies of scale?

Answer 7

Concentration economies

Information economies

Question 8

Define diseconomies of scale

Answer 8

An increase in unit costs as a result of an increased scale of production

Question 9

Why might diseconomies of scale occur?

Answer 9

Communication problems
Managerial problems in production
Reduction in morale

Question 10

What are some costs and benefits of diseconomies of scale?

Answer 10

Business may be forced to pay overtime to meet demand-units costs rise-reducing margins
Machines working for longer, reducing time to maintain them-lead to breakdowns
Must be monitored carefully-larger firms review impact on costs when they take decision to increase overall size of firm