3.4.4 Economies and diseconomies of scale

• What are economies of scale?

  Cost advantages of size
• Economies of scale can only be internal.

  False
• What is an example of technical economies of scale?

  Specialized equipment use
• External economies of scale are controlled by the business itself.

  False
• External economies of scale depend on industry and location
• Match the example of external economies of scale with its description:

  Access to skilled local labor pool ↔️ Lower recruitment costs

  Availability of specialized suppliers nearby ↔️ Better prices and service

  Enhanced infrastructure ↔️ Cost savings in transport
• What are internal economies of scale?

  Cost savings within business
• Technical economies of scale arise from the use of specialized equipment and machinery
• Match the type of external economy of scale with its benefit:

  Labor Market Economies ↔️ Lower recruitment costs

  Supplier Economies ↔️ Better prices and service

  Infrastructure Economies ↔️ Cost savings in transport

  Knowledge Spillovers ↔️ Productivity gains
• What is a key benefit of marketing economies of scale for larger firms?

  Lower advertising costs
• The presence of specialized suppliers in an industry can lead to better prices and service for businesses.


  True
• What is a technical economy of scale achieved through?

  Specialized equipment
• Larger businesses can secure better financial terms due to their bargaining power.

  True
• What is an example of an external economy of scale related to infrastructure?

  Well-developed transport networks
• What is a primary benefit of knowledge spillovers for businesses in the same industry?

  Productivity gains
• What is a management challenge that can lead to diseconomies of scale?

  Bureaucracy
• Worker motivation can decrease in larger organizations due to a lack of engagement
• Categorize examples of economies of scale into internal and external:

  1️⃣ Technical economies

  2️⃣ Managerial economies

  3️⃣ Purchasing economies

  4️⃣ Labor market economies

  5️⃣ Infrastructure economies
• Managerial economies of scale arise from improved management structures
• Economies of scale typically lead to lower unit costs as production increases.

  True
• What is a benefit of external economies of scale related to infrastructure?

  Enhanced support services
• Internal economies of scale arise from within the business
• Access to a large pool of skilled workers is an example of a labor economy of scale.


  True
• What is a technical economy of scale achieved through?

  High-capacity equipment
• What is a technical economy of scale?

  Specialized equipment lowers costs
• Larger businesses can often secure better financial terms due to their size
• Labor market economies arise from a large pool of skilled workers
• Knowledge spillovers lead to productivity gains through shared technology
• What is a managerial diseconomy of scale?

  Inefficient management due to hierarchy
• Why does decreased communication contribute to diseconomies of scale?

  Misinformation slows processes
• Motivation issues in larger organizations can lead to reduced productivity
• Managerial diseconomies occur when managing a large organization becomes inefficient.


  True
• Match the type of diseconomy with its example:

  Coordination Diseconomies ↔️ Communication challenges between divisions

  Managerial Diseconomies ↔️ Complex hierarchies and slow processes
• Internal economies of scale arise from within the business
• What is an example of an external economy of scale?

  Skilled labor in the area
• What are the two categories of economies of scale?

  Internal and external
• What are economies of scale classified into?

  Internal and external
• Internal economies of scale include technical, managerial, and purchasing advantages
• Match the type of economy of scale with its definition:

  Internal Economies of Scale ↔️ Cost savings from within the business

  External Economies of Scale ↔️ Benefits from outside the business
• Purchasing economies of scale arise from bulk buying