T4 - Economies and Diseconomies of scale Flashcards
What are economies of scale
When increasing output causes LRAC to fall
Difference between RoS and EoS
RoS concerns output prouction
EoS focuses on LRAC
Examples of internal eco of scale
Technical
Specialisation
Bulk Buying
Marketing
Risk Bearing
Container Principle
FInancial
Types of EoS
Internal and external
Examples of external EoS
Expansion fo industry
When firms and people are located closer together
Population growth
On an LRAC curve when is there EoS/Inc RoS
Any point left of the optimuim level of output (min point)
Reasons for diseconomies of scale
Principle agent problem
Communication failiure
Repetive work
Hard to co operate in big work force
Lack of managment and strcuture
Give some external diseconomies of scale
Increase in number of firms causing -
Comp for customers
Comp for labour
Inc congestion in towns and cities
Inc deliver costs
What is MES
Minimum efficient scales is the lowest neccessary output for a fimr to achieve EoS
What does it mean if MES is low
Lots of firms as it is easy to achieve EoS and be competitive
what are internal economies of scale
what teh busienss cna do to lower ac
econ dal neumonic for iternal eos
really fun mums try making pies
what does really fun mums try making pies stand for
risk bearing - spread of risk
fianncial - lower rates of interests from banks etc
managerial - specialised
technical - specialsit capital
marketing - bulk buying it
pirchasing- bulk buying
what are external eos
those that occur in the industry but not the firm
what is menat by risk bearign eos
as busienss gets bigger, cost spread more, less overall risk on any one line, of shi, lwoer avrage unit costs
