Economies of Scale
- Created by: Hayley Barker
- Created on: 27-05-13 15:33
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- Economies of scale
- factors that lead to a reduction in unit costs as a business increases in size
- TECHNICAL: investment in machinery/ equipment
- Production is quicker and more reliable than manual
- lower labour costs, no production delays
- Use of specialist equipment
- increased efficiency/ reduced costs
- SPECIALISATION = Large businesses
- Split into different departments
- workforce divided- each worker is specialised
- No time wasted changing from tool to tool
- Little training required
- LEADS TO: increased efficiency- reduction in average costs
- MARKETING: Packaging and market research
- Costs shared across incresed production levels
- DISTRIBUTION: Own fleet of vehicles - transport at a cost price advertising
- ADVERTISING: Cost spread over great output
- PERSONAL SELLING: Admin costs do not rise in proportion to size of sale
- FINANCIAL
- Larger assets to offer as security
- Usually more diversified
- Less vulnerable to competition (less risky)
- Large businesses more widely known so:
- Easier to raise money through shares
- people more willing to invest in a company theyve heard of
- RISK- BEARING
- Produce a range of different products
- Operate in several different markets
- Reduce dependence on any one product, market or activity
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