Economies of Scale

Question 1

what is economies of scale?

Answer 1

reduction in average costs of production

Question 2

what are internal economies of scale?

Answer 2

• purchasing e.g bulk buying
• managerial e.g specialist staff
• technological e.g latest equipment

Question 3

what are the external economies of scale?

Answer 3

• suppliers e.g attracted to large firms - can negotiate price
• education e.g reduces training costs
• financial e.g better access to financial lenders

Question 4

what is diseconomies of scale?

Answer 4

the increase in average costs (happens when the scale of a business continues to increase, causing inefficiency)

Question 5

what are 3 examples of diseconomies of scale?

Answer 5

• coordination (managers delegate to junior members of staff)
• communication (lots of layers of hierarchy, takes time)
• motivation (workers dont feel valued, productivity fails)