Economies of Scale

• Economies of scale are the cost savings that an organisation gains as it increases in size
• Economies of scale cause an increase in efficiency and a decrease in unit costs and also tend to improve labour productivity
• Technical economies of scale -> businesses can afford to buy more tech
• Specialisation economies of scale -> the bigger the business the better you are at making the product
• Purchasing economies of scale -> bulk buying
• Marketing economies of scale -> scope to spend more on ads
• Financial economies of scale -> bigger businesses get lower interest on loans
• Managerial economies of scale -> bigger businesses have the ability to get the best managers in the market
• Research and development economies of scale -> big businesses can afford to spend more on R&D
• Economies of scale are the cost savings that an organisation gains as it increases in size
• Diseconomies of scale are the disadvantages that an organisation experiences due to an increase in size
• Diseconomies of scale cause a decrease in efficiency and/or an increase in unit costs of a product
• Diseconomies of scale can include

  • co-ordination diseconomies
  • communication diseconomies
  • motivation diseconomies