Growth- Economies of Scale Flashcards
Technical Economies
Advanced machinery, meaning more products can be produced more quickly and to a higher standard
Managerial Economies
Business is split into several departments, with specialised managers- maximising efficiency as they are experts at their job
Purchasing Economies
Receive discounts from suppliers for buying more
Marketing Economies
Advertising costs are spread out over a greater output
Financial Economies
Raise capital at a lower interest as they have larger assets for security
Risk-Bearing Economies
Has a number of products, meaning they are less dependent on a single one
Economies of Scale can allow AFL to be competitive on…
Price- attracting customers from their competition, increasing their market share and revenue
Economies of Scale can allow AFL to increase the profit margin on each unit, meaning…
There’s more money to reinvest in the business, or to give shareholders higher dividends
AFL made a loss last year, which could in part be due to…
Diseconomies of Scale, increased interest rates and increased competition
Co-ordination and Control (Diseconomy of Scale)
Increased complexity of a business, making it harder for everyone to have a common goal and to work together
Communication (Diseconomy of Scale)
More levels for messages to get through, which slows down decision making, reducing productivity
Workers can feel removed and isolated from the business
Motivation (Diseconomy of Scale)
Greater supervision and difficulties with communication cause poor relations between staff and managers, causing low morale and decreased productivity
When do Diseconomies of Scale usually occur?
When expansion is rapid, and appropriate systems are unable to develop in time to cope
