Economies of Scale

Question 1

What is economies of scale?

Answer 1

The cost advantages that enterprises obstain due to their scale of operation, where unit coss falls as output increases.

Question 2

List me three types of economies of scale

Answer 2

1. Technical Economies of scale
2. Purchaisng Economies of scale
3. Risk Bearing economies of scale.

Question 3

What is technical economies of scale

Answer 3

Large firms can afford to invest in more advanced and productive capital, which lower average costs.

Question 4

What is purchasing economies of scale?

Answer 4

Large firms can bulk buy, which lowers unit costs.

Question 5

What is risk bearing economies of scale?

Answer 5

When firm grows, they can expand their production range, hence they can spread the cost of uncertainty.