set 0 Flashcards
how would larger businesses benefit from economies of scale and scope?
what is economies of scales?
what is internal economies of scale?
what are 4 types of economies of scale
lower unit costs
economies of scale = as scale of production increases the cost of producing each item decreases.
internal economies of scale : increasing efficiency within the firm
- technical = related to production . large business can afford to buy better and more advanced machinery
- managerial = large business can employ managers with specialist skills this can help increase effiency as work will be done more quickly
- purchasing= related to discounts. big business can negotiate discounts when buying supplies in large quantities. the bigger the discount the longer the credit period than smaller competitors they can also borrow money at lower interest rate.
- marketing = marketing cost are usually fixed so business will large OUTPUT can spread the cost over more unit.
what is external economies of scale?
happens when an industry is concentrated in small geographical areas.
Having a large number of suppliers means a business can easily negotiate with a range of suppliers which tends to increase quality and reduce prices.
what is experience curve?
when a business grows and increases sales volume it will begin to produce more products workers will get more experience and become more efficient at making products which will cause cost per unit to decrease.
what is economies of scope?
when a business produces a range of products instead of specialising in one
It is cheaper for a business to produce many products. It allows them to gain comparative advantage as they charge lower prices due lower unit costs.
what is Diseconomies of scale
as scale of production increase unit cost increase
This happens because large firms are harder to manage than smaller ones.
In large business : difficult communication, poor coordination = less efficient, harder to motivate people in a large firm because small business closer to managers and it easier for them to feel like they belong there
It can be prevented through: strong leadership, decentralisation and delegation
Why does retrenchment happen?
What does retrenchment mean?
How does this happen?
how does retrenchment affect workers?
In order to keep business profitable
Business downsizes in some areas
- Cutting jobs
- Reducing output = selling few units reduces capacity
- Withdrawing from the market
Retrenchment affects workers as makes them redundant - if done over a little steps over workers may not be badly affected. However if it is done too quickly it might have a bigger impact.it can lead to decreased productivity.
