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Flashcards in Economies Of Scale Deck (22):
1

What are economies of scale?

The ability to reduce cost per unit by increasing output over a large scale in the long run

2

What are internal economies of scale?

When output is increased by the individual business

3

What are external economies of scale?

When the entire industry increases output

4

Give 3 reasons why large firms may face lower unit costs than smaller firms?

Can buy in bulk

Access to technology

Workers are specialised

5

Give 5 internal economies of scale?

Technical

Specialisation

Purchasing

Marketing

Financial

6

What is the technical economy of scale?

Ability to use cost reducing, technical equipment when producing a large output

7

What is specialisation?

The larger the firm, the more staff and the grater ability to specialise

8

What is purchasing?

Ability to negotiate cheap deals when buying in bulk

9

What is marketing as an economy of scale?

Per unit sold, a larger firm spends less on marketing than a smaller firm

10

What is financial economy of scale?

Larger firms can secure lower rates of interest when borrowing, compared to small firms

11

Give the 3 external economies of scale?

Concentration

Information

Disentigration

12

What is concentration?

The larger the industry, the greater the chance of outlets locating close to each other which reduces marketing costs

13

What is information as an economy of scale?

Information spreads more easily in a larger industry

14

What is disintegration ?

The larger the industry, the greater the chance of suppliers locating nearby

15

What are diseconomies of scale?

When large firms produce output above a certain level, unit costs will start to rise

16

Give 3 types of internal diseconomies of scale?

Co ordination

Communication

Motivation

17

What is co ordination?

The firm will be so big it will start to duplicate tasks

18

What is communication as an internal diseconomy of scale?

Larger firms have taller structures and could have poor communication

19

What is motivation as an internal diseconomy of scale?

The bigger the firm and greater the specialisation the lower the motivation for some workers

20

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

21

How might internal diseconomies of scale be avoided?

Job enlargement/enrichment

22

Give the external diseconomy of scale?

Congestion- where there’s concentration of firms it can increase costs