U1 What are Economies of Scale Flashcards
What are economies of scale?
- refers to producing more units of a good or service on a larger scale with lower average input costs.
- Economic growth can be achieved when economies of scale are realized.
What were the two key means identified by Adam Smith to achieve a larger return on production?
- Employees can concentrate on specific tasks, improve their skills, and perform tasks better and faster.
- Efficiency will save time and money while increasing production levels.
What are diseconomies of scale?
occur when production is less than in proportion to inputs, resulting in rising average costs.
What is the difference between internal and external economies of scale?
- Internal economies of scale: when costs are reduced and production is increased.
- External economies of scale: an industry outside of a firm, benefiting all firms within that industry.
What are some inputs that can result in economies of scale within a company?
- Lower input
- Costly inputs
- Specialized inputs
- Techniques and organizational inputs
- Learning inputs
How can external economies of scale be realized?
Sharing technology or managerial expertise within an industry can lead to external economies of scale and the creation of industry standards.
What factors can lead to diseconomies of scale?
- Inefficient managerial or labor policies
- over-hiring
- deteriorating transportation networks
What are the potential effects of expanded business seeking economies of scale?
- small businesses may become extinct and developing nations may not experience growth.
- Concerns are raised about the balance of power between demand and supply
- disappearance of competition, and monopolies focusing solely on profit.
What should companies consider when expanding and aiming for efficiency?
- balancing the effects of different sources of economies of scale/diseconomies of scale.
- Strategical decisions that impacts are widespread.
