Theme 3 Topic 4 - Business Growth Flashcards
Define Economies of Scale
The reductions in average costs enjoyed by a business as output increases
Define Internal Economies of Scale
The cost reductions enjoyed by a single business as it grows
What are the six internal economies of scale?
Purchasing economies, Technical economies, Marketing economies, Specialisation and Managerial economies, Financial economies, Risk-Bearing economies
Define Purchasing Economies
Buying in greater quantities usually results in a lower price (bulk buying)
Define Technical Economies
Use of specialist equipment or processes to boost productivity
Define Marketing Economies
Spreading a fixed marketing spend over a larger range of products, markets and customers
Define Specialisation and Managerial Economies
As a business grows it can afford to employ specialist managers
Define Financial Economies
Larger firms benefit from access to more and cheaper finance when they try to raise it
Define Risk-Bearing Economies
As a business grows it might diversify to reduce the risk
Define External Economies of Scale
The cost reductions available to all businesses as the industry grows
What are the four external economies of scale?
Labour, Ancillary and Commercial Services, Co-Operation, Disintegration
Define Labour (as an external economy of scale)
The concentration of businesses may lead to the build up of a labour workforce equipped with the skills required in an industry
Define Ancillary and Services
An established industry tends to attract smaller businesses trying to serve its needs
Define Co-Operation
Businesses in the same industry are more likely to co-operate if they are concentrated in the same region and join forces to fund research and development centres etc.
Define Disintegration
Occurs when production is broken up so that more specialisation can take place
