Economies of scale Flashcards
Define economies of scale
When there is a fall in average total costs as the scale of production increases
Define internal economies of scale
Occurs due to an increase in the scale of production for a firm
Define external economies of scale
Occur due to an increase in the scale of production within the industry in which the firm operates
What are purchasing economies
Discounts for buying in bulk
What are technical economies
The use of specialist, often expensive capital (machines)
What are managerial economies
Specialist labour (accountants and lawyers)
What are financial economies
Better credit ratings as large firms are seen to be less likely to fail and can borrow money at lower interest rates
Describe the features of technical economies
Spread fixed costs over greater output so cost per unit is lower
Describe the features of managerial economies
Division of labour allows staff to focus on particular areas, employee can focus on a specific job so they can be better qualified, more experienced and more efficient
What are the positive impacts of external economies of scale
Improved transport infrastructure, a pool of skilled workers and more advanced communications systems
What are diseconomies of scale
Occur when there is an increase in average total costs as the scale of production increases
What are the forms of diseconomies of scale
Internal communication and coordination
What is the mid point of an economies of scale diagram
Productive efficiency
How can small firms survive providing they cant access economies of scale
Niche markets, personal service, geographical segmentation, tailor made products or services, profit satisficing not maximisation
