Unit 1 - Economies of scale

What are the 3 things that business size can be measured in

Sales revenue, Capital employed, Size of output

Define economies of scale

The cost advantages that a business can achieve as it increases its production

Define diseconomies of scale

The cost disadvantages that a business may face as it grows too large

Two benefits of internal economies of scale

1. Can spread costs over a large number of units, making each unit cheaper to produce

2. Lower costs mean higher profits, allowing businesses to compete more effectively.

Two consequences of internal diseconomies of scale

1. Larger businesses become harder to manage, less flexible and less productive

2. It highlights the risk of excessive growth and the importance of maintaining efficiency

Two types of internal diseconomies of scale

Communication problems

Staff demotivation

3 types of external economies of scale

1. Supplier efficiency increasing, leading to lower production costs

2. Infrastructure investments from the government leading to lower transportation costs

3. Location of a business that specialises in a specific industry, attracting specialist labour

2 types of external economies of scale

Supplier inefficiency increasing leading to higher production costs

Increasing costs affecting the whole industry