Economies of Scale
- Created by: lewis.mackk05
- Created on: 03-01-22 13:08
View mindmap
- Economies of Scale
- What are Economies of Scale, and When do they occur?
- These occur when mass producing a good results in lower average cost. Average costs fall per unit – Average costs per unit = total costs / quantity produced Economies of scale occur within an firm (internal) or within an industry (external).
- Internal Economies of Scale
- Purchasing/Marketing Economies
- Advertising costs can be spread across products
- Large businesses can employ specialist staff
- Bulk Buying- buying more means a decreased unit cost
- Financial Economies
- Larger firms have better lending terms and lower interest rates and its easier for them to raise capital
- Risk is spread over more products and administration costs can be divided amongst more products
- Greater potential finance from retained profits
- Production/Technical Economies
- Larger Firms can use computers etc to replace production line
- Mass Production Lowers unit cost
- Able to take advantage of bulk materials
- Managerial Economies
- More specialised management can be employed, this increases the efficiency of the business decreasing the costs
- As a business grows in scale, its costs will fall due to internal economies of scale. An ability to produce units of output more cheaply.
- Risk-Bearing Economies
- Large firms are more likely to take risks with new products as they have more priducts to spread the risk over
- Purchasing/Marketing Economies
- External Economies of Scale
- These are shared by a number of businesses in the same industry in a particular area. These are advantages gained for the whole industry, not just for individual businesses.
- Examples
- As businesses grow within an area, specialist skills begin to develop.
- Skilled labour in the area – local colleges may begin to run specialist courses.
- Being close to other similar businesses who can work together with each other.
- Having specialist supplies and support services nearby
- What are Economies of Scale, and When do they occur?
Similar Business Studies resources:
Teacher recommended
Comments
No comments have yet been made