Economies Of Scale Flashcards
Different types of economies of scale
Internal and external
Where do external economies of scales occur
Within an industry
Benefits of internal economies of scale
Risk bearing Financial Marketing Technical Managerial Purchasing power
How does risk bearing benefit a firm who has gained internal economies of scale
The firm able to diversify over different markets and spread risk
How does a firm benefit financially who has gained internal economies of scale
Able to borrow money at a lower interest rate
How does marketing benefit a firm who has gained internal economies of scale
Larger firms find it cost effective to advertise nationally
How does a firm benefit technically by gaining internal economies of scale
Able to invest in machinery which can increase productivity
How does a firm benefit managerially by gaining economies of scale
They are able to employ specialist managers
How does a firm benefit purchasing power by gaining internal economies of scale
It can purchase its inputs in bulk at negotiated discounted prices
Causes of diseconomies of scales
Poor communication
Lack of motivation
Loss of direction and coordination
