c) Internal and external

a) types of economies and diseconomies of scale

c) distinction between internal and external economies of scale

internal economies of scale → caused by an increase in the size of the firm

• financial benefits

  • lower interest rates

  • purchasing economies → cheaper bulk-buying

• cost distribution

  • cost of production spread over a larger number of sales

internal diseconomies of scale

• communication breakdown/bureaucracy

  • multiple layers of management communicate slower

• low coordination

  • larger workforces are harder to control and organise efficiently

external economies of scale → caused by an increase in the size of the whole industry

• improved transport

  • high load capacity + lower fuel and holding costs

  • expanded access to factors of production

• increase in the skilled labour pool

  • lower recruitment + training + wage costs

external diseconomies of scale

• geographical cluster

  • high competition for skilled labour → high wages

  • high demand for space → high rent costs

• infrastructure strain

  • high demand for local transportation → traffic congestion