economies of scale

explain financial economies of scale

1. have more credibility as a large firm

2. able to negotiate lower interest rates and larger loans

explain technical economies of scale

1. by hiring more workers (TC rises)

2. make workers specialise in jobs

3. they can thus solely focus on them

4. boosting productivity and resulting in a higher output per worker (Q rises more than TC)

5. thus, AC falls (as TC is spread over a larger range of output? is this necessary)

explain marketing/purchasing economies of scale

1. they are able to bulk buy advertising/raw materials

2. have bargaining advantage

3. able to negotiate better unit rates of marketing/purchasing

4. spread costs over a larger volume of sales/output (TC rises slower than Q rises → AC falls)

explain co-ordination/communication diseconomies of scale

1. as the firm grows too large, it becomes more difficult for the firm to maintain an effective flow of information through the company

2. impacting productivity

3. TC rises much faster than Q → AC rises

explain morale diseconomies of scale

1. as the firm grows too large, workers feel a sense of alienation from the company (they are easily replaceable)

2. thus, morale becomes low and their productivity falls

3. TC rises faster than Q rises → AC rises

explain economies of information

1. R&D knowledge is shared among firms in the industry (e.g. cost-saving tech)

2. technology is improved

3. boosts productivity of individual firms

4. TC falls over the same range of output/while Q rises → AC falls

explain economies of concentration

1. many firms are concentrated in one area

2. transport infrastructure for that area is more invested in and developed

3. thus it becomes cheaper to access raw materials (TC falls)

4. TC falls over the same range of output → AC falls

explain strain on infrastructure (EDOS)

1. firms are too concentrated in one area

2. infrastructure is taxed to its limits → e.g. traffic congestion

3. TC rises due to increased fuel consumption

4. productivity falls due to loss of time (Q falls)

5. AC rises

explain shortage of resources (EDOS)

1. industry grows larger → shortage of certain raw materials/labour

2. competition for said resources pushes up price (TC rises)

3. TC rises much faster than Q → AC rises

define EEOS

the savings in costs that occur to all firms as a result of the expansion of the industry/concentration of firms in a certain location

define IEOS

cost savings that occur as a result of the firm’s expansion/increasing the scale of production and have been created by the firm’s own policies and actions

define IDOS

increases in long run average costs that occur to the firm as a result of the expansion of the firm, which is the result of the firm’s own policies and actions

define EDOS

increases in costs that occur to all firms in an industry as a result of the expansion of the industry/concentration of firms in a certain location

how is IEOS/IDOS represented diagrammatically?

IEOS: the falling part of the LRAC curve

IDOS: the upward sloping part of the LRAC curve

how is EEOS/EDOS represented diagrammatically?

EEOS: downward shift of the LRAC curve

EDOS: upward shift of the LRAC curve