economies of scale and scope

• economies of scale formula

  total production costs in period / total output in period
• categories of economies of scale

  internal - arise from the increased of output of the business itself

  external - occur within a industry
• internal economies of scale

  purchasing - buying in greater quantities usually results in lower prices

  technical - use of specialist equipment

  managerial - specialist management can be employed to help reduce unit costs
• external economies of scale

  -having many specialists suppliers close by

  -access to r&d facilities

  -pool of skilled labour to choose from
• economies of scope 


  it’s cheaper to produce a range of products rather than specialise in a very limited number
• diseconomies of scale 


  no guarantee unit costs will decrease

  -control : problems monitoring productivity etc.

  -co-operation : workers in a larger firm may feel loss of morale