Production Flashcards
What are a businesses Objectives?
Maximising Profits
Sales Growth
Increasing Market Share
What are economies of scale?
Economices of scale are the benefit to a business of increasing the scale of their production. (Units produced)
Why do Economies of scale reduce average cost?
-Fixed costs are spread over more units
-Variable costs increase at a slower rate
-Resources can be used more efficiently
Name the types of economies of scale
Technical economies
Managerial economies
Financial economies
Risk bearing economies
Purchasing economies
Marketing economies
What are technical economies of scale?
A bigger business can use better or more specialised machines
What are managerial economies of scale?
A bigger business can employ specialist managers in each department
What are financial economies of scale?
A bank will lend a big business money for lower interest rates
What are risk bearing economies of scale?
A big business is not reliant on one product
What are purchasing economies of scale?
Big business can buy cheaply in bulk - reducing average cost
What are marketing economies of scale?
A big business can save on advertising and transport costs
What are diseconomies of scale?
When a business get to big and this results in average costs starting to increase as production increases.
Why do diseconomies of scale happen?
-It is more difficult to make sure everyone is doing the correct task
-Decision making takes longer because you have more people involved
-Over specialisation demotivates workers
Why does a business want to maximise profits?
-Benefits owners for risk of business
-It increases standard of living
-Reinvest and grow business
Why does a business want sales growth?
-Short term obj; allows business to make more money in the long run
Why does a business want to increase market share?
-Increasing market share allows you to improve position over competitors
