economies of scale

• What is the concept of economies of scale?

  Economies of scale refer to the reduction in average costs of production as a business increases its scale of production.
• How do economies of scale provide a competitive advantage to larger businesses?

  Larger businesses benefit from lower average costs of production, giving them a competitive advantage over smaller businesses.
• What happens to total costs as output increases in the context of economies of scale?

  Total costs increase as output increases, but the cost of producing each unit falls.
• What distinguishes short run costs from long run costs?

  In the short run, costs can be both variable and fixed, while in the long run all costs become variable.
• How does a business's long run average cost curve relate to short run average cost curves?


  A business's long run average cost curve is made up of a series of short run average cost curves, each progressively lower.
• What is the relationship between the number of workers and the cost per metre of trench dug on a building site?

  • With one worker: £3 per metre (5 metres dug)
  • With two workers: £2 per metre (10 metres dug)
  • With three workers: £1.66 per metre (15 metres dug)
• What is an example of how economies of scale can reduce average costs in the long run on a building site?

  Using a digger instead of manual labor can lower potential average costs further.
• What are the two broad groups of economies of scale?

  • Internal economies of scale
  • External economies of scale
• What are internal economies of scale?

  Internal economies of scale are reductions in average cost per unit due to increasing internal efficiencies within a business.
• What are purchasing economies of scale?

  Purchasing economies occur when businesses increase order sizes for raw materials, resulting in discounts and lower costs per component.
• How do technical economies of scale improve efficiency?

  Technical economies allow businesses to purchase the latest equipment and incorporate new production methods, increasing efficiency and reducing costs.
• What are financial economies of scale?

  Financial economies occur when larger businesses have access to a wider range of finance and can negotiate better interest rates due to increased asset security.
• How do managerial economies of scale enhance efficiency?

  Managerial economies allow businesses to employ specialist managers who optimize spending in production, marketing, and purchasing, thus reducing average costs.
• What are marketing economies of scale?

  Marketing economies occur when the cost of advertising is spread over a larger number of stores, increasing the benefit of each advertising pound spent.
• What are external economies of scale?

  External economies of scale are advantages that benefit an entire industry rather than just an individual business.
• How do supplier economies of scale benefit businesses?

  Supplier economies occur when a network of suppliers is attracted to a growing industry, reducing buying costs and allowing for systems like Just-in-Time.
• What are educational economies of scale?

  Educational economies occur when local colleges set up training schemes suited to the needs of large employers, reducing recruitment and training costs.
• How do financial services benefit from external economies of scale?

  Financial services can improve with banks providing services tailored to specific industries, such as debt factoring at competitive rates.
• What are diseconomies of scale?

  Diseconomies of scale are factors that cause higher costs per unit of output as the scale of an organization increases, leading to inefficiencies.
• How can coordination issues lead to diseconomies of scale?

  Coordination issues arise as organizations grow, making it difficult to manage effectively, leading to inefficiencies and increased costs.
• What communication issues can arise in large organizations?

  As organizations grow, communication can break down, leading to misunderstandings and inefficiencies that increase average costs.
• How do motivation issues contribute to diseconomies of scale?

  Motivation issues arise in larger businesses as employees may feel ignored, leading to decreased productivity and increased costs.
• What are external diseconomies of scale?

  External diseconomies of scale are disadvantages that affect all businesses in an industry, such as overcrowding and increased resource prices.
• How can overcrowding in industrial areas lead to diseconomies of scale?

  Overcrowding can cause traffic congestion, resulting in late deliveries and increased costs for businesses.
• How does increased demand for resources contribute to diseconomies of scale?

  Increased demand for resources can lead to higher prices for labor, land, and materials, raising costs for businesses.
• How do economies of scale affect different stakeholders?

  • Consumers benefit from lower prices due to reduced costs.
  • Shareholders may see increased share values as businesses prosper.
  • Suppliers face pressure to provide cheaper goods, impacting their profitability.
  • Some businesses may become monopolies, eliminating competition.
• What factors contribute to the survival of small businesses despite not benefiting from economies of scale?

  • Provide services difficult to scale up (e.g., plumbing).
  • Target market size suited for small businesses.
  • Population density allows small businesses to thrive.
  • Quality of service justifies higher prices.
  • Customer loyalty to local shops.
  • Niche markets that are not attractive to larger businesses.
• What is the purpose of the discussion themes provided in the study material?

  The discussion themes encourage exploration of economies of scale through videos and case studies, such as Apple's experiences.
• What is the link to the economies of scale video mentioned in the study material?

  The link is https://www.youtube.com/watch?v=6ihehRMtRWc
• What is the link to the Apple economies and diseconomies of scale article?

  The link is https://fayblack.wordpress.com/2012/09/11/economies-of-scale-apple/