1.2.17 Economies and diseconomies of scale

Created by

Stenio Jonathan

Cards (21)

what does internal economies of scale mean? 
advantages gained by one firm only
What are the six internal economies of scale? 
managerial economies
technical economies
marketing economies
financial economies
purchasing economies
risk-bearing economies
what does managerial economies mean 
As firms expand, they can afford specialist managers instead on relying on a general manager
what does technical economies mean
when a firm expands, it can buy better equipment
how does a firm buying new technical equipment affect the costs of a firm?
it reduces cost and reduces waste
What does a market economy mean?
as firms expand, since the ads are a fixed cost, If a firm grows, the price of an ad would be the same, meaning the average cost of an advert is lower for a large firm
What does a financial economy mean? 
when a firm expands, with more and more trusted money, they can get financial discounts easier
What does a purchasing economy mean?
when a company buys in bulk for cheaper
What does a risk bearing economy mean? 
when a firm expands, they can have a big product range
external economies of scale 
advantages gained for the whole industry
What are the four External economies of scale
skilled labour
infrastructure
access to suppliers
similar businesses in an area
How does skilled labour affect external economies of scale?
easier access to trained workers as they would all be in the same area
How does infrastructure affect external economies of scale? 
structure around the area sorted to optimum production
How does access to suppliers affect external economies of scale?
encourages suppliers to set up nearby
How do similar businesses affect external economies of scale?
They can share research and development
what does diseconomies of scale mean?
the firm increases in size and average cost rises
What are the four Diseconomies of scale 
Bureaucracy
Communication problems
Lack of control
distance between senior staff and shop floor workers
What is bureaucracy
Time and resources wasted on paperwork and administration
How does the DoS 'Communication problems' affect a firm
If workers are a different culture, speak a different language than ither workers, then it is Hard to understand
How does the DoS 'lack of control' affect a firm 
hard to control so many staff, offices and different locations
How does the DoS 'distance between senior staff and shop floor workers ' affect a firm
too many layers of management between the highest level of management to the lowest, resulting in a lack of understanding