Managerial

• What are the three types of economies of scale mentioned?

  Managerial, purchasing, and technical
• What is the broad definition of economies of scale?

  As output grows, average cost per unit falls
• How do managerial economies of scale affect a business?

  They lead to employing specialist managers
• What is the impact of hiring a specialist manager on efficiency?

  It increases efficiency by organizing employees
• If a business has total costs of £2 million and produces 1 million units, what is the average cost per unit?

  £2
• What happens to total costs when a specialist manager with a salary of £100,000 is added?

  Total costs increase to £2.1 million
• How many total units does the business produce after hiring the specialist manager?

  1.2 million units
• What is the new average cost per unit after hiring the specialist manager?

  £1.75
• Why is a decrease in average cost per unit beneficial for a business?

  It makes the business more price competitive
• What are the key points of managerial economies of scale?

  • Employ specialist managers as business grows
  • Higher wages for specialists
  • Increased efficiency through better organization
  • Lower average costs per unit
• What is the process of calculating average cost per unit?

  1. Total costs divided by total units
  2. Example: £2 million / 1 million units = £2
  3. After adding costs of specialist manager: £2.1 million / 1.2 million units = £1.75