Economies And Diseconomies Of Scale Flashcards

1
Q

What is economies of scale

A

The unit cost advantages from expanding the scale of production in the LR

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2
Q

How can you tell economies of scale is being exploited

A

LRAC curve is declining

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3
Q

What is the long run Curve made of

A

A series of short run curves

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4
Q

When can economies of scale occur

A

From increasing returns to scale in the LR

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5
Q

Examples of internal economies of scale

A
  • containerisation
  • purchasing
  • managerial
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6
Q

What is technical economies of scale

A

Gains in productivity / efficiency from scaling up production

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7
Q

Examples of technical economies to scale

A

Large scale businesses can afford to invest in specialist capital machinery.
They can also specialise the workforce

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8
Q

What is marketing economies of scale - monopsony power

A

A large film can purchase in bulk if it has monopsony power

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9
Q

What is managerial economies of scale

A

Division of labour where firms employ specialists to supervise production systems

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10
Q

What is financial economies of scale

A

Financial markets are more ‘credit worthy’ and have access to credit with favourable rates of borrowing usually rate larger firms

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11
Q

What is internal economies of scale

A

Expansion of the firm itself
LRAC decreases as output increases
Increasing returns

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12
Q

What is external economies of scale

A

Expansion of the industry of which the firm is a member

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13
Q

What are agglomeration economies

A

Businesses in similar industries clustering together and attracting an influx of skilled talent which then provides human capital to expanding businesses

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14
Q

Can every firm experience economies of scale

A

Only internal

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15
Q

What influences the size of economies of scale relative to market demand

A

The nature of production / technology requirements

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16
Q

What is constant returns to scale

A

Unit costs will be stable

17
Q

When may diseconomies of scale occur

A

From a business expanding beyond an optimum size and losing productive efficiency

18
Q

How can diseconomies occur

A
  • control and communication problems
  • co-operation
  • negative effects of internal politics, information over-load
19
Q

Key effects of diseconomies of scale

A
  • business moved beyond optimum size
  • lack of productive efficiency
  • higher unit costs reduces total profits