Dis/Economies of Scale

  • Created by: CHalsall
  • Created on: 06-03-14 14:16
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  • Dis/Economies of Scale
    • Economies of Scale
      • Bulk Buying-Larger businesses purchase larger volumes of goods than smaller ones. this means they can demand discounts when buying so much, lowering average price per unit.
      • Technical- Larger busineeses can afford to invest in the most modern, and up to date machinery, making them more efficient
      • Financial-Larger firms have more assets to their name. this means they are more attractive to lending companies and institutes, with better interest rates
      • Marketing- Costs of advertisment can be spread over more products. This reduces average costs per unit.
      • Administrative- larger firms do not need a proportionally higher degree of administration and management as the business grows, due to high volumes of product output and sales. This reduces average costs of administration per unit of product outputs and sales
    • Diseconomies of Scale
      • Communication-As a business grows, so does the degree of bureaucracy within the organisation. the length of the chain of command also increases, as does the span of control. results in less clear instructions, recieving less feedback, and less communication.
      • Management- managers become remote and far removed from the ordinary employee. this could erode their percieved authorityas employees may never have a face-to-face encounter with them. considered the 'ivory tower brigade'. can produce poor industiral relations
      • Motivation- Larger firms are considered more impersonal, cuasing workers to feel discredited. employees lose motivation and so a loss in the productivity rate


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