1.4.5 economies of scale

a level microeconomics production, costs and revenue

internal economies of scale

come from growth in output of firm itself as it expands its own operations, efficiencies in production gained, reducing LRAC

external economies of scale

come from factors outside the firm because of growth in the size of the industry, reducing LRAC for individual firms

external EOS examples

infrastructure, labour force and knowledge, supplier network, all come from firms within industry clustering geographically

internal EOS examples

purchasing, financial, risk-bearing, marketing, managerial

economies of scope

occurs when it’s cheaper for a firm to produce a range of products than one product (e.g. mcdonalds can use same storage and preparation facilities for burgers and fries)

diseconomies of scale

may happen if a firm grows too large or too quickly leading to LRAC rising as firms haave expanded beyond optimum scale

diseconomies of scale causes

(interanlly) loss of communication or reduced motivation of workers, (externally) resources of FOPs becoming too scarce

EOS limits

limited due to limited demand, occupational immobility of capital equiptment, diseconomies of scale

minimum efficient scale, MES

the lowest output at the lowest point on the LRAC, the business achieves productive efficiency

constant returns to scale

an increase in inputs leads to a proportional increase in output