Economies of scale

• What are the two main types of economies of scale?

  Purchasing economies and technical economies
• What does economies of scale refer to?

  Reduction in average unit costs as output increases
• How does purchasing economies of scale benefit a business?

  By negotiating better deals with suppliers
• Why can a business negotiate better prices as it grows?

  It becomes more important to the supplier
• What is an example of purchasing economies of scale?

  Shock Sesh buying cocoa at lower prices
• What is a likely outcome of purchasing economies of scale?

  Increased efficiency due to reduced inputs
• What do businesses gain as output increases in purchasing economies of scale?

  More negotiating power
• What can businesses negotiate beyond average unit costs?

  Delivery times and trade credit
• What do technical economies of scale allow businesses to do?

  Buy more or better quality capital
• How does increased finance affect technical economies of scale?

  It allows for better productivity through capital
• What does an increase in productivity indicate?

  Higher output from the same input
• What production method is often associated with technical economies of scale?

  Flow production
• What are the key points of purchasing economies of scale?

  • Reduction in average unit costs
  • Increased negotiating power
  • Ability to negotiate better delivery and credit terms
  • Example: Shock Sesh's cocoa purchasing
• What are the key points of technical economies of scale?

  • Increased finance availability
  • Ability to purchase better quality capital
  • Higher productivity from improved machinery
  • Example: Shock Sesh's chocolate molding machine
• What are the differences between purchasing and technical economies of scale?

  • Purchasing: Focus on negotiating better prices
  • Technical: Focus on improving productivity through capital
  • Both lead to reduced average unit costs