micro - economies and diseconomies of scale

Question 1

define economies of scale

Answer 1

a reduction in long run average costs as output increases

Question 2

define internal economies of scale

Answer 2

economies of scale arising from the expansion of the firm

Question 3

what are the types of internal economies of scale?

Answer 3

risk-bearing (Really)
financial (Fun)
managerial (Mums)
technical (Try)
marketing (Making)
purchasing (Pies)

Question 4

define risk-bearing economies of scale

Answer 4

large firms are able to take risks and and diversify because they have the financial capability to do so

Question 5

define managerial economies of scale

Answer 5

large firms are able to employ specialist managers, which will enhance the efficiency of the firms

Question 6

define financial economies of scale

Answer 6

larger firms are able to negotiate better interest rates and payback options with banks as they are more reputable and trustworthy. Allows it to capitalise on its size.

Question 7

define technical economies of scale

Answer 7

large firms are able to invest in expensive, capital inputs and specialist capital machinery, increasing efficiency

Question 8

define marketing economies of scale

Answer 8

large firms are able to spread their advertising and marketing budget over a large output

Question 9

define purchasing economies of scale

Answer 9

large firms are able to purchase large amounts of raw materials, which result in greater bulk and discounts

Question 10

all internal economies of scale lead to a…

Answer 10

fall in long run average costs!

Question 11

define external economies of scale

Answer 11

economies of scale that arise from the expansion of the industry in which the firms is operating

Question 12

give example of external economies of scale

Answer 12

better transport infrastructure - cheaper to sell goods and access raw materials
component supplies more closer - cuts costs of transporting raw materials
research and development firms more closer - use them to improve technology and reduce LRAC

Question 13

define diseconomies of scale

Answer 13

an increase in long run average costs as output increases

Question 14

define internal diseconomies of scale

Answer 14

diseconomies of scale that arises from the expansion of the firm

Question 15

define external diseconomies of scale

Answer 15

diseconomies of scale that arises from the expansion of the industry in which the firms is operating

Question 16

what are diseconomies of scale caused by?

Answer 16

3 C's and 1 Mv
control
communication
coordination
motivation

Question 17

why does lack of control cause diseconomies of scale?

Answer 17

problems with monitoring productivity and work quality, increasing wastage of resources

Question 18

why does lack of communication cause diseconomies of scale?

Answer 18

departments unable to communicate on how to increase productivity

Question 19

why does lack of coordination cause diseconomies of scale?

Answer 19

as a firm gets large, it becomes more difficult for all the departments such as purchasing and marketing to work alongside each other so productivity suffers

Question 20

why does lack of motivation cause diseconomies of scale?

Answer 20

workers in large firms may develop a sense of alienation and a loss of morale so they may have little autonomy at how they approach different tasks.

Question 21

increasing returns to scale is when…

Answer 21

% change in output > % change in input

Question 22

constant returns to scale is when…

Answer 22

% change in output = % change in input

Question 23

decreasing returns to scale is when…

Answer 23

% change in output < % change in input