3.10 Economies of Scale

igcse 3.5.5

Define economies of scale

incr scale of output = dec cost per unit

Define diseconomies of scale

incr scale of output = incr cost per unit

Internal EoS
> decisions w__ firm → EoS
1. p__ e__: large f__ buys mats in b__ & gets a d__ = ↓avg c__
2. m__ e__: a__ costs spread over lots of s__ = wider audience

within, purchasing economies, firm, bulk, discount, cost, marketing economies, advert, sales

Internal EoS
3. f__ e__: l__ firms are less r__ to lend to by b__ = ↓i__ rates
4. t__ e__: large firms can a__ to invest in new t__, specialised e__, s__ workers = ↑e__ & productivity

financial economies, large, risky, banks, interest, technical economies, afford, tech, equipment, skilled, efficiency

Internal EoS
5. r__-b__ e__: large firms = ↑product r__, ↑range of c__, ↑l__ to sell in
> spreads r__ of failure

risk-bearing economies, range, consumers, locations, risk

Internal DisEoS
1. c__ d__: firms with lots of layers of m__ & in __ locations struggle to c__ quickly & e__
2. m__ d__: firms spread in diff. locations have diff. m__ = conflict
> as each manager has their own style

communication diseconomies, management, diff, communicate, efficiently, management diseconomies, managers

Internal DisEoS
3. l__ d__: firms operate lots of m__ & w__ operating these get b__ (repetitive)
4. a__ d__: firm m__/takes over too many o__ w/ d__ methods OR diff. stages of p__
> hard to understand, r__, coordinate all diff areas

labour diseconomies, machinery, workers, bored, agglomeration diseconomies, merges, others, diff, production, run

External EoS
> firms benefit from ↑s__ of i__
1. s__ l__: firms recruit w__ trained by o__ firms e.g. pilots
2. a__ firms: firms s__ mats to larger firms e.g. moving closer to firm

size, industry, skilled labour, workers, other, ancillary, supply

External EoS
3. j__ m__ benefits: firms in s__ industry have good relationship = shares r__ & customer base
4. s__ infrastructure: dev. in infrastructure benefits l__ firms
> e.g. govt builds roads = less transport c__ for firm

joint marketing, same, reputation, shared, large, costs