Economies of Scale

List all types of Internal Economies of Scale

To Play Music Follow Rhythm Method:

Technical, Purchasing, Managerial, Financial, Risk-bearing, Marketing

Technical Economies of Scale

Reductions in average cost of production due to improvement in technology (e.g. firm can buy specialised machine or install automated production lines)

Purchasing Economies of Scale

A reduction in cost of raw material per unit as firms can negotiate better prices in bulk

Managerial Economies of Scale

Reductions in average cost as a result of firms employing specialised managers who are more productive

Financial Economies of Scale

Larger firms seen as more reliable by banks so can borrow at lower interest rates

Risk-bearing Economies of Scale

Firms can diversify into more markets - more predictable demand data and easier to absorb failure

Marketing Economies of Scale

Larger firms can reduce fixed Ad costs by advertising several products at once, larger brand = more brand awareness so less needs to be spent on advertising

Internal economies of scale

When a firm has reduced costs of production as a result of its own growth

External economies of scale

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

List all types of External Economies of Scale

Quality Requires Skill:

Qualifications, Road/Transport network improvements, Share resources

Specialised qualifications - economy of scale

Local college may provide a specific qualification sought out by a firm which reduces the cost of training

Road network / Public transport improvement

increased ease of access allows more people to get to work at a reduced cost for the firm (if it covers travel costs)

Share resources

If firms are close together they could share research facilities or suppliers may move closer to them