Economies of scale

Internal Economies of Scale Acronym

Really Fun Mums Try Making Pies

Really

Risk Bearing

• Spreading risk (opportunity cost)

• Over large output range

Fun

Financial

• Negotiate lower rate of interests due to their reputation as a firm

Mums

Managerial

• Employing specialist managers

Try

Technical

• Buying specialist machinery

Making

Marketing

• Buying more marketing strategies

Pies

Purchasing

• Buy raw material in bulk (unit discounts)

Calculation that showcases EOS

Average Cost = Total Cost ⬆ / Quantity ⬆⬆⬆

External Economies Of Scale

Occurrences that happen outside of the firm that aid in the growth of the business.

Better Transport infrastructure

• New roads

• Reducing costs

• Access to raw materials

Component suppliers closer

• Supplies move closer

• Cuts down costs

• Total cost decreases

Research and Development firms move closer

• Moves closer

• Improve tech

• Increase quantity

Diseconomies of Scale

An increase in LRAC as output increases.

Control

• Difficult to control workforce

Communication

• Spread messages to company

• harder to send a message from either part of the company from bottom to top vice versa.

Coordination

• Coordinating different parts of firms makes it more difficult the bigger the firm gets.

Motivation

• Each individual worker will feel less valued

• They then become less motivated.