Economies and Diseconomies of Scale

what are economies of scale?

when average costs fall due to expansion

what is diseconomies of scale?

when average costs end up rising due to a firm becoming TOO big

what is internal EOS?

benefits of cost a firm can enjoy when they grow

what are the benefits? (internal EOS)

• marketing

• purchasing

• managerial

• risk bearer

• financial

• technical

explain what purchasing economies are

its when firms buy stuff in bulk from suppliers for a lower cost (example: multi-packs of ramen)

explain what marketing economies are

its when large firms lower the unit cost of promotion and ads

explain what managerial economies are

when a large company hires specialist managers, unlike small companies who hire one manager who handles everything

explain what risk bearing economies are

an economy that allows a business to spread risk across different products — basically more products = less risk

explain what technical economies are

a type of economy that is achieved through tech

explain what financial economies are

financial economics is a branch of economics that analyzes the use and distribution of resources in markets

they sell shares to get money and if theyre big they earn money easier

what is external EOS?

cost benefits that all firms in an industry can enjoy when the industry expands

what are the benefits? ( external EOS )

• supplier access

• infrastructure

• similar businesses

• skilled labor

explain the skilled labor benefits

• specific skills are needed/required if its directed at one industry

• training cost lowers if someone applies ^

• local education may provide courses for that field

explain supplier access benefits

• basically theyre asked to set up close nearby so other industries can use their stuff

explain benefits of infrastructure

• its when a specific industry dominates a region

  • the roads need other facilites to help their needs

  • a specialized industrial estate developed to help local IT industry

explain the benefits of similar businesses

• basically firms that are similar are located close by, they work together to gain more profit

explain bureaucracy in DIS EOS and how the average cost rises

• a system of administration that uses a large number of departments and officials

businesses that are large usually rely on it, however if its too much theres too many resources used = slow and wasted time and wasted resources = average cost rising

explain DIS EOS in communications

large businesses have lots of workers around the world, therefore theres like language, timezone and culture barriers.

explain DIS EOS in lack of control

large businesses are hard to control, they need more management as theres too many people

explain how distance between staff is a diseconomy

• if a firm gets too big, the relations can worsen as theres too many layers of management

• meaning they remove layers and roles

• leads to unwareness is not notified + no motivation

• conflicting and wasted resources