Y2 6) Economies and Diseconomies of Scale

Economies of Scale

A reduction in long-run average cost as output increases.

Diseconomies of Scale

An increase in long-run average cost as output increases.

Internal Economies of Scale

Cost advantages that a business can exploit as it increases its level of production, occurring within a business.

External Economies of Scale

Cost benefits that accrue to a firm due to external factors, usually within its industry, as the industry grows.

Managerial Economies of Scale

Cost savings that arise from employing specialist managers to improve productivity.

Technical Economies of Scale

Cost advantages gained from the use of specialized machinery to boost productivity.

Purchasing Economies of Scale

Cost savings achieved by buying inputs in bulk to negotiate better prices.

Marketing Economies of Scale

Cost reductions achieved through bulk purchasing of advertising.

Financial Economies of Scale

Cost advantages gained from obtaining loans at lower interest rates due to a firm's size and reputation.

Risk-Bearing Economies of Scale

Reduced costs associated with spreading risk over a larger output.

Control (Diseconomies of Scale)

Difficulty in managing a larger workforce, leading to decreased productivity.

Communication (Diseconomies of Scale)

Challenges in disseminating information throughout a large organization, impacting efficiency.

Coordination (Diseconomies of Scale)

Increased complexity in aligning different departments' operations as a firm grows.

Motivation (Diseconomies of Scale)

Decreased worker motivation as employees feel less valuable in a large organization.