Scale of operation

Question 1

What is scale of operation?

Answer 1

the maximum output that can be achieved using the available inputs (resources) – this scale can only be increased in the long term by employing more
of all inputs

Question 2

What is economies of scale?

Answer 2

reductions in a firm’s unit (average)
costs of production that result from an increase in the scale
of operations.

Question 3

What are the 5 factors that influence the scale of operations?

Answer 3

Owners objectives 
Capital 
Size of the market 
Number of competitors 
Scope for scale economies

Question 4

Is producing more the same as increasing scale?

Answer 4

No, more can be produced by increasing capacity utilisation.
Changing the scale of operation (opening factories or removing the) increases economies of scale

Question 5

What are the 5 internal economy of scale?

Answer 5

Purchasing 
Technical 
Financial 
Marketing 
Managerial

Question 6

What are the 3 diseconomies of scale

Answer 6

Communication problems
Alienation of workforce
Poor coordination

Question 7

Overcoming diseconomies

Answer 7

Management by objectives
Decentralisation- smaller business units
Reduce diversification- concentrating on core activities