Efficiency, Productivity, and Economies/Diseconomies of Scale

Flashcards covering concepts of efficiency, labour productivity, and different types of economies and diseconomies of scale.

What is one way a business can increase efficiency and labour productivity?

By extending the overall scale of production.

What is the primary reason internal economies of scale are an advantage for an organisation?

As output increases and the business grows, unit costs fall.

How do technical economies of scale increase efficiency and labour productivity?

Through new machinery, mass production techniques, and employing specialists, which lower unit costs, improve quality, and enhance productivity.

How does specialisation contribute to increased efficiency as an economy of scale?

Staff are able to specialise, becoming even more skilled in their role, which increases overall efficiency.

Explain how purchasing economies of scale lead to lower unit costs.

Large firms can engage in bulk-buying, which often results in greater discounts from suppliers.

How do marketing economies of scale improve the effectiveness of advertising and reduce unit costs?

Large firms can afford more expensive media and market research, increasing advertising effectiveness and reducing unit costs due to scale.

What financial advantages do large companies gain through economies of scale?

They can obtain loans easily at lower interest rates and have easier access to funds from retained earnings and shareholders.

How do research and development economies of scale benefit a business?

They enable large companies to invest more extensively in innovation and development, leading to the discovery of new products and more efficient production methods.

How do social and welfare economies of scale improve staff retention and morale?

By providing social facilities (e.g., canteens) and welfare benefits (e.g., health insurance, pensions), staff sickness and turnover are reduced, and morale is boosted.

How do managerial and administrative economies of scale contribute to a business's competitiveness?

By enabling the employment of the best managers and the adoption of more cost-effective administrative procedures, which reduces overheads and improves competitiveness.

What are diseconomies of scale?

Disadvantages that arise when organisations expand, leading to a lowering of efficiency and higher unit costs.

How does a loss of co-ordination lead to diseconomies of scale?

Management loses control as the organisation becomes too complex with many departments and hierarchy levels, leading to wider spans of control and decreased efficiency.

How do communication problems contribute to diseconomies of scale in large hierarchies?

In large hierarchies, employees may feel less valued and struggle to work due to increased distance and potential communication breakdowns, leading to demotivation and reduced efficiency.

Explain how motivation issues arise in diseconomies of scale.

Employees may feel unvalued and demotivated due to a lack of individual recognition and reward in larger organisations, leading to decreased productivity.