Econ theme 3 economies of scale

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9 Terms

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Internal economies of scale

As a firm increases production its LRAC decreases

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Types of internal economies of scale

RMFPTM - risk-bearing, managerial, financial, purchasing, technical, marketing

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Risk-bearing

Large firms diversify into other sectors to reduce the cost of failure in one sector

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Managerial

Large firms hire specialist managers to increase productivity

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Financial

Large firms are less risky so can secure cheaper loans

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Purchasing

Large firms buy goods in bulk and can negotiate lower prices

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Technical

Large firms invest in specialist capital to increase productivity

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Marketing

Large firms spread marketing costs across many units

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