economies of scale

• What are economies of scale

Reductions in average unit cost that happen as a business grows larger

• What are purchasing economies of scale

When a large firm buys supplies in bulk and gets them at a cheaper unit price

• What are technical economies of scale

When a large firm can afford more advanced machinery or benefits from the law of increased dimensions

• How do lower average unit costs benefit a firm's profit margins

The firm can make more profit on each item they sell

• How do lower average unit costs benefit a firm's pricing strategy

They can charge customers less which can increase sales and overall profit

• What are diseconomies of scale

Growth that leads to an increase in average unit costs

• Why does communication become harder in a larger firm

It has more people so decisions take longer to reach everyone and workers can feel insignificant

• How can a larger workforce lead to a drop in productivity

Workers can become demotivated when they feel insignificant at the bottom of a hierarchy

• Why does coordination become more difficult as a business grows

The production process becomes more complex and different departments might duplicate work without knowing