economies of scale

• small businesses dont last because:

  cant afford top locations/up to date tech

  harder to promote

  often need to charge higher prices than large firms

  cant benefit from purchasing EOS
• small businesses survive because:

  cheap methods of promotion

  brand loyalty - discount loyalty cards

  focus on customer service

  business plan assists finance

  greater flexibility to change to meet customer demand
• diseconomies of scale

  coordination - business grows different working practices are used and people spread out increases difficulty to manage

  communication - more levels of hierarchy and number of staff and branches so harder to communicate and messages can get lost

  motivation - combo of poor coordination and communication employees become demotivated
• ways to minimise DES

  improve communication- develop intranet and newsletter

  improve motivation - team building activities

  improve coordination - better training and empowerment of management
• external types of EOS

  education - local colleges offer skill based courses and research capabilities are improved at universities

  supplier - look to relocate themselves closer to industry so reduce transport costs and improve responsiveness for exploitation

  infrastructure - results in = better rail and port links, faster broadband, better telecommunications - help to lower operating costs through better efficiency
• bulk buying - buying large volumes of goods so supplier offers discount - lower costs means lower selling price for consumer to maximise profit
• financial EOS = businesses grow and acquire more assets which are used as security against financial borrowing
• technical EOS = business increase production levels due to capital equipment, automation, less waste and more efficiency
• marketing EOS = increase of sales mean marketing costs are spread over more units of output reducing average costs
• managerial EOS sole trader is responsible to keep business running as you grow employ specialists so fewer mistakes and lower costs
• risk bearing = firms diversify into new products/market to spread the risk
• EOS is a reduction in average costs per unit that a firm benefits from as a result of increasing scale of their business
• 2 types of EOS

  internal - benefits company

  external - benefits entire industry
• DES = as business increases scale of operations their long-run average costs - average cost of their output when production are variable -curve start to show rise in costs
• stakeholder impact of EOS

  customers - large cost savings due to lower price

  competitors - some large firms hold monopoly power so have more ability to takeover rivals

  suppliers - larger customers can put pressure on suppliers

  shareholders - lower average costs means increased profits so higher dividends