What are Economies of Scale:

• Economies of scale arise when unit costs fall as output increases

How to calculate Economies of Scale:

Total production costs in period (£)/Total output in period (units)

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

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

  • Examples:

    • Having many specialist suppliers close by

    • Access to research and development facilities

    • The pool of skilled labour to choose from