c) Internal/external

• internal economies of scale

• external economies of scale

• economies of scale caused by a firm growing larger

• economies of scale caused by an industry growing larger

• examples of internal economies of scale

• a decrease in interest rates

• purchasing economies

• cost distribution

• a decrease in interest rates are achieved because…

• larger firms are more financially literate

• larger firms have a more predictable profit flow

• purchasing economies are achieved because…

• larger firms can afford bulk purchases

• larger firms have more bargaining power over suppliers

• cost distribution is achieved because…

• fixed costs are spread over a larger amount of output

• examples of internal diseconomies of scale

• worsened communication

• worsened coordination

• worsened communication is a diseconomy of scale because…

• multiple layers of management communicate slower

• decisions must be approved by more layers of management

• worsened coordination is a diseconomy of scale because…

• larger workforces are harder to organise and control efficienctly

• different divisions operate at different speeds and capacities

• examples of external economies of scale

• improved transportation

• an increase in the skilled labour pool

• improved transportation is an economy of scale because…

• transportation is more efficient

• firms have a wider access to production factors

• an increase in the skilled labour pool is an economy of scale because…

• wages have decreased

• recruitment and training costs have decreased

• examples of external diseconomies of scale

• a geographical cluster

• infrastructure strain

• a geographical cluster is a diseconomy of scale because…

• demand for skilled labour has increased

• demand for physical space has increased

• infrastructure strain is a diseconomy of scale because…

• demand for local transportation has increased

• demand for electricity and water has increased