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What are economies of scale?
Economies of scale arise when unit costs fall as output increases
What is the equation for economies of scale?
Total production costs in period (£)/ Total output in period (units)
What are the internal economies of scale?
Arise from the increased output of the business itself
Buying economies: Buying in greater quantities usually results in a lower price (bulk-buying)
Technical: Use of specialist equipment or processes to boost productivity
Marketing: Spreading a fixed marketing spend over a larger range of products, markets and customers
Network: Adding extra customers
Financial: Larger firms benefit from access to more and cheaper finance
What are external economies of scale?
Occur within an industry: i.e. all competitors benefit
Arise from the industry as a whole- i.e. all competitors benefit
Often associated with particular geographic areas
E.g. Creative and media in London
What are the examples of economies of scales?
Having many specialist suppliers close by
Access to research and development facilities
The pool of skilled labour to choose from
