Chapter 4

• Economies of scale


  Any financial advantage that comes from increasing output or production which leads to a fall in average unit costs
• Diseconomies of scale


  The opposite of economies of scale
• Types of economies of scale

  • Technical economies
  • Purchasing economies
  • Marketing economies
• Technical economies


  • Arives from the use of technology
• Purchasing economies


  • Ability to buy raw materials or components cheaper if they purchase in bulk
• Marketing economies


  • A firm selling on a large scale can afford more effective advertising
• Types of diseconomies of scale

  • Communication problems
  • Morale
  • Co-ordination and control problems
• Ethics

  Concept that someone or an organisation should do the right thing by society's standards
• Ethical considerations

  • Equality of pay
  • Environmental impact
  • Exploitation of workers living in relative poverty
• Production

  Process of manufacturing a product
• Productivity

  Level of productivity throughout the production process
• Methods of improving productivity

  • Use of technology / machinery
  • Training of workers
  • More effective management
• Benefits of improved productivity

  • Increased output
  • Increased quality of products
• Business objectives: increasing market share, social enterprises, profit maximisation, sales growth
• Variable cost

  Cost that does change with output, e.g. raw materials
• Fixed cost

  Cost that does not change without output
• Total cost

  Total of all goods/services produced
• Price elasticity of supply (PES)

  Responsiveness of quantity supplied to a change in price
• Factors affecting PES

  • Availability of stocks
  • Spare production capacity
  • Time
• Formula for PES

  %Change in quantity supplied /% Change in price
• The formula for PES is change in quantity supplied / change in price