Economics and Business

Economies of scale:

Economies of scale – are ways in which long run increases in output this can reduce costs per unit and increases efficiency.

Internal economies – are long run reductions in costs per unit resulting from expansion of a single business

Technical economies – arise when larger and more efficient capital items can be used because their high costs can be spread across a larger quantity of output.

Marketing economies – occur when high cost advertising and promotion activities are possible. The costs are covered if they can secure high and rising sales.

Managerial economies – become possible when output is high enough to justify hiring specialists to perform specific management tasks e.g. for marketing and HRM

Bulk buying economies – occur when businesses are purchasing large enough quantities to be charged a lower price per unit, either because unit supplier’s costs are reduced or because the buyer has market power.

Financial economies – are possible when lenders offer big businesses lower interest rates because they look less risky

Risk bearing economies –when a business has a single product, a single market or perhaps has a single new product, it is highly vulnerable if that product fails. Businesses with many products or markets are diversified and can spread risk by offsetting loses is one area against profits elsewhere.

Diseconomies of scale – are increases in unit cost that occur as a business grows larger, often associated with communications issues or costs of co-ordination.

External economies – these are reductions in unit costs that occur as long-run output rises and are shared by a whole industry rather than limited to a single firm. External economies are very common when similar firms are concentrated in one location.

Minimum efficient scale – is the lowest level of output at which average or unit costs can be minimised.

Characteristics of an Oligopoly:

Oligopoly - An oligopoly is a market structure with just a few sellers/suppliers dominating the market or an oligopoly market is one which has a three firm concentration ratio of over 40% of the market share. Oligopolies have high barriers to entry such as start-up costs. Firms with an…