productive efficiency - economies and diseconomies of scale Flashcards
what are economies of scale?
as output rises, costs fall
what are the internal economies of scale?
- risk-bearing
- financial
- managerial
- technical
- marketing
- purchasing
what are external economies of scale?
- concentration –> as an industry grows in a specific place due to skilled labour also being there
- information –> information services set up for the benefit of the industry
define diseconomies of scale
unit costs increase as output increases
what are the impacts of diseconomies of scale?
- loss of control
- bad communication
- lack of coordination
- lack of motivation
how is risk bearing an economy of scale?
larger firms are more likely to take risks with new products as they have more products to spread the risk over
e.g. diversification
how is finance an economy of scale?
- larger firms can raise capital easier, have better interest and lending terms
- greater finance through retained profits
how is managerial an economy of scale?
- more specialised management can be employed, this will increase efficiency and increase profits
how is technology an economy of scale?
- more computers/technology to replace workers
- mass production at a lower cost per unit
how is marketing an economy of scale?
- advertising costs can be spread across products
- employ specialist staff
how is purchasing an economy of scale?
- bulk-buying (if you buy more unit costs will fall)
how is lack of control an impact of diseconomies of scale?
larger businesses find it harder to control employees
how is communication an impact of diseconomies of scale?
harder to send messages down the supply chain (or vice versa), so messages may be delayed which can lead to problems in production
how is coordination an impact of diseconomies of scale?
different parts of the business don’t work alongside each other
how is lack of motivation an impact of diseconomies of scale?
the more workers a firm has, the less valued they may feel (feel dispensable), not motivated to work
