79 Economies of scale

==economies of scale== - the cost reductions when production of a company increases

when a firm experiences economics of scale, unit cost falls.

capital investment- money used to buy fixed assets like; land, machinery, buildings

Purchasing economies;

• bulk buying reduces variable cost per unit.

technical economies of scale;

• as a firm grows it’ll become more economic to invest in new technology.
• switching from labour to new machinery will generate savings in unit costs.
• machinery can reduce wastage - reducing amount of raw materials being wasted will cut firms variable costs .
• smaller firms may lack financial resources to buy machinery.
• technology only becomes practical to use if the firm has a long production run to spread out fixed costs of equipment.
• capital investment becomes more practical as firm grows as fixed costs per unit fall as usage rises.

Managerial economies

• as firm grows managers can specialise in certain tasks.
• larger firms have more people to make decisions where as smaller firms don’t.
• larger firms can gain a cost advantage.