9.1e - Economies of Scale Flashcards
When do economies of scale arise?
When unit costs fall as output increases
Minimum efficient scale definition
The output level where average unit costs of production are at their minimum
Internal economies of scale definition
Economies of scale arising from the increased output of the business itself
External economies of scale definition
Economies of scale arising within an industry itself
Examples of external economies of scale:
- Having many specialist suppliers close by
- Skilled local labour supply making industry more efficient
What are the different types of economies of scale?
- Purchasing
- Technical
- Managerial
- Networking
- Marketing
- Financial
- Distribution
Purchasing economies definition
When a business buys in greater quantities resulting in lower price per unit
Technical economies definition
When lower unit costs occur as a result of the use of specialist equipment to boost productivity
How can managerial economies occur?
When large businesses can employ managers with specialist skills to manage specific departments
How can marketing economies occur?
By spreading a fixed marketing spend over a larger range of products
Advantages of economies of scale:
- Enables business to have a low cost strategy
- Competitive advantage
