Flashcards in Economies Of Scale Deck (22):
What are economies of scale?
The ability to reduce cost per unit by increasing output over a large scale in the long run
What are internal economies of scale?
When output is increased by the individual business
What are external economies of scale?
When the entire industry increases output
Give 3 reasons why large firms may face lower unit costs than smaller firms?
Can buy in bulk
Access to technology
Workers are specialised
Give 5 internal economies of scale?
What is the technical economy of scale?
Ability to use cost reducing, technical equipment when producing a large output
What is specialisation?
The larger the firm, the more staff and the grater ability to specialise
What is purchasing?
Ability to negotiate cheap deals when buying in bulk
What is marketing as an economy of scale?
Per unit sold, a larger firm spends less on marketing than a smaller firm
What is financial economy of scale?
Larger firms can secure lower rates of interest when borrowing, compared to small firms
Give the 3 external economies of scale?
What is concentration?
The larger the industry, the greater the chance of outlets locating close to each other which reduces marketing costs
What is information as an economy of scale?
Information spreads more easily in a larger industry
What is disintegration ?
The larger the industry, the greater the chance of suppliers locating nearby
What are diseconomies of scale?
When large firms produce output above a certain level, unit costs will start to rise
Give 3 types of internal diseconomies of scale?
What is co ordination?
The firm will be so big it will start to duplicate tasks
What is communication as an internal diseconomy of scale?
Larger firms have taller structures and could have poor communication
What is motivation as an internal diseconomy of scale?
The bigger the firm and greater the specialisation the lower the motivation for some workers
When small firms can’t benefit from economies of scale, give 2 ways that they can?
Charge higher prices (niche)
Have a greater variety/individuality of products
How might internal diseconomies of scale be avoided?