economies of scale

• what are the factors leading to survival of small businesses?

  target market size, population density, quality of service and product, customer loyalty, niche markets
• define economies of scale

  the reduction in average costs of production that occur as a business increases its scale of production.
• reasons for internal diseconomies of scale

  coordination issues, communication issues, motivation issues
• what are the internal economies of scale

  purchasing, financial, technical, marketing, managerial
• define internal economies of scale

  reductions in average cost per unit of output as a result of increasing internal efficiencies of the business
• define purchasing economies 


  as businesses grow they increase the size of orders for raw materials or components. this may then result in discounts being given and the cost of each individual component purchased will fall. this will therefore reduce the average cost of production.
• define technical economies

  as businesses grow they are able to purchase the latest equipment and incorporate new methods of production. this increases efficiency and productivity, reducing average costs of output
• define financial economies

  as the assets of the business grows they are able to offer more security when seeking to borrow money - reducing risk to lender. therefore, larger businesses can often negotiate more favourable rates on any money they do borrow
• define managerial economies

  as the business grows it will be able to employ more specialist managers, these managers will know how to get the best value for each pound spent in the business . this will increase efficiency and reduce the average costs of producing goods and selling the goods or services on offer.
• define marketing economies

  as the business grows each pound spent on advertising will have greater benefit to the business.