productive efficiency - economies and diseconomies of scale Flashcards
what are economies of scale?
when unit costs decrease as output rises
what are the internal economies of scale?
- risk-bearing
- financial
- managerial
- technical
- marketing
- purchasing
what are external economies of scale?
- better transport infrastructure
- component suppliers move closer
- research and development firms move closer
define diseconomies of scale
unit costs increase as output increases
what are the impacts of diseconomies of scale?
- loss of control
- bad communication
- lack of coordination
- lack of motivation
how is risk bearing an economy of scale?
larger firms are more likely to take risks with new products as they have more products to spread the risk over
how is finance an economy of scale?
- larger firms can raise capital easier, have better interest and lending terms
- greater finance through retained profits
how is managerial an economy of scale?
- more specialised management can be employed, this will increase efficiency and increase profits
how is technology an economy of scale?
- more computers/technology to replace workers
- mass production at a lower cost per unit
how is marketing an economy of scale?
- advertising costs can be spread across products
- employ specialist staff
how is purchasing an economy of scale?
- bulk-buying (if you buy more unit costs will fall)
how is better transport infrastructure an external economy of scale?
receiving raw materials quicker which will reduce costs
how are component suppliers being closer an external economy of scale?
reduce costs as the supplies are near by
how are research and development firms being closer an external economy of scale?
because they will choose to operate near a firm in hopes of that firm using their ideas. it will reduce costs for the business
how is control an impact of diseconomies of scale?
larger businesses find it harder to control employees
