economies of scale

what are the two types of economies of scale

1. internal

2. external

name six internal economies of scale

1. purchasing

2. managerial

3. technical

4. risk bearing

5. marketing

6. financial

how does finantial, risk bearing and technical economies of scale work

1. finantial. when a firm grows larger, its a sign they are successful. this increases the willingness of banks to loan money to them

2. risk bearing. as a firm expands its more able to develop a range of products which lowers risk

3. technical. The larger a business the more they can invest into technology which produces the good more faster at a cheaper cost

what type of cost does economies of scale impact

average cost curve

name three external economies of scale and how they opperate

1. better transport networks. can transport goods and services more efficiently

2. research and development facilities. in local universities that firms can benefit from

3. relocation of component suppliers. costs less to import materials

what are the three main causes of diseconomies of scale and how they work

1. communication. as a firm grows, lines of communication will blur between manager levels

2. control. this falls if lines become blured as decisions may not be followed correctly

3. coordination. workers may feel alienated in large businesses and become demotivated.

how to avoid diseconomies of scale 2

1. performance-related pay schemes. finantial incentives to work harder. boosts productivity. waitrose- shareholder so incentivised to work harder

2. human resources department. this increases productivity and wellness of workers in areas such as training, recruitment and retention.

define economies of scale

a reduction in LRAC as output increses