Understanding Economies and Diseconomies of Scale

Economies of Scale

Reduction in average total cost with increased production.

Internal Economies of Scale

Cost advantages from increased production within a firm.

Economies of Scale

Reduction in average total cost with increased production.

Internal Economies of Scale

Cost advantages from increased production within a firm.

External Economies of Scale

Cost benefits from industry-wide production increases.

Purchasing Economies of Scale

Lower costs per unit from bulk buying discounts.

Technical Economies of Scale

Cost savings from using specialized, efficient machinery.

Managerial Economies of Scale

Efficiency gains from employing specialized managers.

Financial Economies of Scale

Lower borrowing costs due to better credit ratings.

Diseconomies of Scale

Increased average costs as production expands excessively.

Internal Diseconomies of Scale

Cost increases due to inefficiencies within a firm.

External Diseconomies of Scale

Cost increases due to industry-wide factors.

Survival of Small Firms

Ability of small businesses to thrive despite competition.

Positive Externalities

Benefits experienced by third parties outside a transaction.

Division of Labour

Specialization of tasks to improve efficiency and productivity.

Fixed Costs

Costs that do not change with production volume.

Research and Development (R&D)

Investment in innovation to improve products or processes.

Skilled Worker Pool

Availability of trained labor in a specific area.

Infrastructure Improvements

Enhancements in facilities that support business operations.

Competitiveness

Ability to compete effectively in the market.

Job Lot Purchasing

Buying large quantities to secure lower prices.

Credit Terms Negotiation

Arranging favorable borrowing conditions with lenders.

Specialist Labour

Workers with expertise in specific fields.

Diseconomies of scale

Increase in average total cost with production scale.

Internal communication

Challenges in effective communication within large firms.

Coordination problems

Difficulty managing personnel and customer interactions.

Higher average costs

Increased costs that discourage firm growth.

Overtrading

Taking on excessive orders leading to potential losses.

Economies of scale

Reduction in average costs as production increases.

Optimum output

Minimum unit costs achieved at productive efficiency.

Productive efficiency

Point where unit costs are minimized.

Niche market

Targeting a specific segment of consumers.

Personal service

Providing tailored customer experiences.

Geographical segmentation

Dividing market based on location.

Tailor-made products

Custom products designed to meet specific needs.

Profit satisficing

Prioritizing satisfactory profits over maximum profits.

External economies of scale

Cost advantages from external factors affecting firms.

Internal economies of scale

Cost benefits realized within a firm as it grows.

Average total cost

Total cost divided by quantity produced.

Competitive advantage

Edge gained by reducing production costs.

Cost of communication

Expenses incurred for effective internal messaging.

Management challenges

Difficulties in overseeing larger workforce dynamics.

Stakeholder impact

Effects of scale economies on business stakeholders.

Firm growth discouragement

Higher costs leading to reluctance in expanding operations.

Efficiency in production

Optimal use of resources to minimize costs.

Economies of scale

Reduction in average production costs with increased output.

Short run costs

Costs that include both variable and fixed expenses.

Long run costs

All costs become variable over time.

Fixed costs

Costs that do not change with output levels.

Variable costs

Costs that change with production levels.

Short run average cost curve (SRAC)

Curve representing average costs in the short run.

Long run average cost curve (LRAC)

Curve representing average costs when all inputs are variable.

Internal economies of scale

Cost reductions from increasing internal efficiencies.

External economies of scale

Cost reductions from external factors affecting the industry.

Purchasing economies

Cost savings from bulk purchasing of materials.

Technical economies

Cost reductions from advanced production techniques.

Financial economies

Lower borrowing costs due to increased business size.

Managerial economies

Cost savings from hiring specialized managers.

Average cost per unit

Total cost divided by the number of units produced.

Cost per metre of trench

Total wages divided by metres dug.

Output

Total quantity produced by a business.

Decreasing average costs

Reduction in cost per unit as production increases.

Wages of foreman

£10 per hour for supervisory role.

Wages of worker

£5 per hour for trench digging.

Trench digging capacity

Worker digs five metres per hour.

Digger usage

Switching to machinery for increased efficiency.

Specialist managers

Experts that optimize business operations.

Economies of scale

Cost advantages gained as production increases.

Marketing economies

Reduced advertising costs per store in chains.

External economies of scale

Industry-wide benefits from growth, not just individual firms.

Supplier economies

Lower costs due to local supplier competition.

Educational economies

Training schemes tailored to local industry needs.

Financial economies

Specialized financial services for large industries.

Quantitative economies

Measured savings using financial methods.

Diseconomies of scale

Increased costs per unit with larger scale.

Coordination issues

Challenges in managing large organizations effectively.

Communication issues

Breakdown of efficiency as hierarchy increases.

Just-in-Time

Inventory strategy to reduce holding costs.

Debt factoring services

Selling receivables to improve cash flow.

Average costs

Total costs divided by output quantity.

Supervision limits

Maximum effective oversight by a manager.

Overhead costs

Indirect costs not directly tied to production.

Management meetings

Gatherings to improve coordination in large firms.

Skilled labour pool

Available workforce trained for specific industry needs.

Geographical concentration

Industry presence in a specific location.

Inefficiency causes

Factors leading to increased production costs.

Output capacity

Maximum production level achievable by resources.

Recruitment costs

Expenses associated with hiring new employees.

Diseconomies of scale

Increased costs due to organizational inefficiencies.

Motivation issues

Worker dissatisfaction in large organizations.

Overcrowding

Traffic congestion affecting business operations.

Increased resource prices

Higher demand raises costs for labor and materials.

Consumer benefits

Lower prices from economies of scale.

Shareholder advantages

Increased share values from business growth.

Monopoly suppliers

Large firms eliminating competition through scale.

Supplier pressure

Demand for cheaper goods from large businesses.

Small business survival

Strategies for small businesses against large competitors.

Service scalability

Local businesses thrive by offering non-scalable services.

Flexibility

Ability to adapt to market changes for small firms.

Target market size

Small businesses suited to niche markets.

Population density

Large businesses require substantial customer bases.

Quality of service

Added value justifying higher prices for small businesses.