5.1 Economies and Diseconomies of Scale

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10 Terms

1
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Define internal economies of scale

The reduction of average cost per unit as the output increases due to factors from the individual business.

2
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What is the difference between internal and external economies of scale?

Internal economies of scale affects the individual business but external economies of scale affects the entire industry.

3
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What is meant by purchasing economies of scale?

When businesses buy larger quantities of resources (in bulk) resulting in a lower cost per unit

4
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What is meant by marketing economies of scale?

When businesses spread costs of marketing over a larger production scale or more of stores in a chain, lowering the cost of marketing per unit.

5
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What is meant by technical economies of scale?

When businesses invest in more advanced technology to improve their productivity due to their larger size

6
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What is meant by financial economies of scale?

When a large business can negotiate better interest rates and offer more security for financial loans due to their larger size

7
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What is meant by managerial economies of scale?

When larger businesses employ specialized managers to improve communication, coordination and motivation.

8
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What is meant by risk-bearing economies of scale?

When businesses have a larger portfolio and do not rely on only one product and can still be secure if a product fails

9
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What is meant by the term diseconomies of scale?

The increase of average cost per unit as output increases

10
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What are 3 examples of diseconomies of scale?

Communication, Coordination, Motivation