Economies and Diseconomies of Scale

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  • Created by: cassidy
  • Created on: 04-06-10 10:39

Economies of Scale

Theses are the factors which explain why, as output increase, average costs fall.

There are internal and external economies of scale:

Internal: when one firm grows in size (increases output) and so benefits from lower average costs.

External: when a whole industry grows in size, so a firm within that industry benefits from lower average costs.

The 6 different types of internal Economies of Scale:

1) Risk-bearing:_ as a firm grows larger it is able to spread it's risks over a larger range of products/outlets or factories.

2) Financial:_ as a firm borrows more money, the bank will charge them a lower interest rate as they are more likely to pay the money back.

3) Marketing:_ a firm will increase it's spending on

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