Economies and Diseconomies of Scale & Business Growth Flashcards

Vocabulary flashcards covering economies and diseconomies of scale, management diseconomies, and forms of business growth and integration.

Internal economy of scale

A cost-reducing advantage enjoyed internally by a firm as it grows, such as bulk-buying raw materials at a discounted rate.

Diseconomies of scale

A situation where a firm's long-run average costs rise as it grows too large.

Backward vertical integration

An integration type where a firm merges with or takes over another firm at an earlier stage of production, such as a chocolate manufacturer merging with a cocoa bean plantation to guarantee raw material supplies.

Forward vertical integration

An integration type where a manufacturing firm merges with or takes over a firm at a later stage of production, gaining permanent retail outlets to sell products directly to consumers.

Conglomerate integration

An integration type where a firm takes over or merges with another firm in a completely different industry, such as an airline company merging with a hotel chain.

Horizontal integration

An integration type where two firms producing the exact same product at the same stage of production merge.

Risk-bearing economies of scale

An internal economy achieved by producing a variety of products so that a decline in one market is offset by another.

Management diseconomies

A cause of rising average costs that typically occurs because communication becomes slow and decision-making difficult in large organizations.

External economy of scale

A cost-saving advantage that benefits an entire industry, such as shared infrastructure (like new roads or ports built by the government) or an entire industry benefiting from a local training college.