Economies of scale Flashcards
(26 cards)
What is the definition of economies of scale?
Economies of scale refer to the cost advantages that a business obtains due to the scale of its operation, with cost per unit of output generally decreasing with increasing scale.
True or False: Economies of scale can lead to lower average costs per unit.
True
Fill in the blank: Economies of scale can be classified into _____ and _____.
internal, external
What are internal economies of scale?
Internal economies of scale are cost reductions that occur within a company as it increases production.
What are external economies of scale?
External economies of scale are cost advantages that benefit all firms in an industry as the industry grows.
Name one type of internal economy of scale.
Technical economies of scale
What is a technical economy of scale?
Technical economies of scale occur when larger firms can use more advanced production techniques or machinery that smaller firms cannot afford.
Multiple Choice: Which of the following is NOT an example of economies of scale? A) Bulk purchasing B) Specialization C) Increased competition
C) Increased competition
True or False: Diseconomies of scale occur when a firm grows too large and average costs begin to rise.
True
What is a potential cause of diseconomies of scale?
Poor communication within a large organization.
Fill in the blank: _____ can lead to higher average costs due to inefficiencies in large-scale operations.
Diseconomies of scale
What is a purchasing economy of scale?
Purchasing economies of scale occur when larger firms can buy raw materials in bulk at a lower price per unit.
Name one advantage of economies of scale.
Lower average costs.
Multiple Choice: Which of the following is an external economy of scale? A) Improved transportation infrastructure B) A company’s investment in new technology C) Increased employee training
A) Improved transportation infrastructure
What effect do economies of scale have on market competition?
They can create barriers to entry for smaller firms.
True or False: All firms experience economies of scale.
False
What is the relationship between economies of scale and market share?
Firms that achieve economies of scale often gain a larger market share due to lower prices.
Fill in the blank: Economies of scale can result in _____ pricing strategies.
competitive
What is a managerial economy of scale?
Managerial economies of scale occur when larger firms can afford to hire specialized managers, leading to increased efficiency.
Name one disadvantage of economies of scale.
Risk of diseconomies of scale.
Multiple Choice: Which of the following describes the concept of ‘learning by doing’? A) Increased production experience leads to lower costs B) Decreased production experience leads to higher costs C) All firms have the same production experience
A) Increased production experience leads to lower costs
What is the significance of economies of scale in international trade?
They can give larger firms a competitive advantage in global markets.
True or False: Economies of scale only benefit large firms.
False
What is a financial economy of scale?
Financial economies of scale occur when larger firms can secure loans at lower interest rates than smaller firms.
