Economies of Scale

Econ

What are External economies of scale often associated with?

Particular geography areas

What are the Internal economies of scale?

- Managerial
- Marketing
- Purchasing economies
- Technical
- Specialisation
- Financial

When do economies of scale arise?

When unit costs fall as output increases

Equation for Average cost per unit?

total production costs in period / total output in period

What is the model for economies of scale?

What do Internal economic of scale arise from?

Increased output of the business itself

Where do External economic of scale occur?

Within an industry

Where do External economies of scale arise from?

The industry as a whole

Examples of External economies of scale?

- Many specialist suppliers close by
- Access to research and development facilities
- Pool of skilled labour to choose from

Which economy of scale do all of the competitors in the market benefit from?

External economies of scale

What are the letters to remember the Internal economies of scale?

- M
- M
- P
- T
- S
- F

Purchasing economies?

Buying in greater quantities usually resulting in a lower price

Example of Purchasing economies?

Bulk buying

What size of business benefits most from Purchasing economies of scale?

Larger chains

What size of business least benefits most from Purchasing economies of scale?

Small independent retailers

Why do Purchasing economies of scale benefit large chains more than small independent retailers?

They are able to obtain much lower prices from key suppliers due to the volume of demand they provide

What do Purchasing economies of scale give to large chains?

Significant cost advantage

What Internal economic of scale is bulk buying an example of?

Purchasing economies

Technical?

Use of specialist equipment or processes to boost productivity

As firms grow what are they often able to do?

Invest heavily in automation

Why do firms invest heavily in automation?

To further improve their efficiency and productivity

What dose capital-intensive and automated production provide firms with?

- Significant unit cost advantages over smaller firms
- High barriers to entry

Managerial?

Specialist management can be employed to help reduce unit costs and boost efficiently

What are some smaller firms unable to afford that larger ones may?

Specialist managerial expertise

How dose having specialist managerial expertise benefit a business business?

Enables it to be more efficiently run

Marketing?

Specialising a fixed marketing spend over a larger range of products, markets and customers

Specialisation?

Large workforce allows work processes to be divided up and recruit people with skills matching the job requirement

Example of Specialisation?

Division of labour

Financial?

Large firms benefit from access to more and cheaper finance

When do External economies of scale occur?

Within an industry