Economies and Diseconomies of Scale

Types of Economies of Scale (7)

- financial

- technical

- managerial

- marketing

- purchasing

- risk bearing

- external

Financial Economies of Scale

internal economy of scale enabling for more favorable rates of borrowing.

Technical Economies of Scale

large capital equipment with high fixed costs

Marketing Economies of Scale

national advertising campaign is more efficient for high costs as it can be spread over more units of output

Risk-bearing economies of scale

The ability of large firms to spread the costs of uncertainty over a wider range of activities and therefore reduce their unit cost.

External economies of scale

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

long-run average cost curves to show economies and diseconomies of scale diagram

MES

efficient scale of production is the lowest point where the firm can produce such that its long run average costs are minimized.

Managerial economies of scale

Reductions in average cost as a result of being able to employ specialist managers who are more productive

purchasing economies of scale

Bulk-buying discounts available to larger firms.

what might cause the LRAC curve to shift down

an increase in external economies of scale or an increase in agglomeration economies

Why might LRAC increase with output

because of diseconomies of scale

types of diseconomies of scale (3 C's)

communication, coordination, cooperation