Economies of scale

Question 1

What is economies of scale?

Answer 1

A reduction in LRAC as output increases

Question 2

What are internal EOS?

Answer 2

They are EoS that can be controlled by the business themselves, where TC increase but quantity increases much more

Question 3

What are some internal EoS?

Answer 3

Managerial- Can employ specialist managers to boost productivity and they bring in their skills.
Technical- Specialist machinery to boost productivity. Or specialising workers.
Purchasing- Buying in bulk when firms get big. Bulk= discounts
Financial- They can negotiate lower rates of interest as they get big since they are ‘lower risk’

Question 4

What are external EoS?

Answer 4

They are EoS that occur outside a business. They tend to occur due to a business getting larger.

Question 5

What are some external EoS?

Answer 5

Better transport infrastructure
Suppliers may move closer if your a huge firm
R&D firms may move closer if your a huge firm

Question 6

What is diseconomies of scale?

Answer 6

An increase in LRAC as output increases

Question 7

What are the problems of a firm getting to big?

Answer 7

Control and communication- Harder to control larger workforce and to send messages across. Workers may slack of since controls weak.

Coordination- Coordinating different parts of a business get harder

Motivation- Workers may not feel valued.