Economies of Scale

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Bulk-Buying Economies

By being forced to order more raw materials and components, the average order size will increase. Large orders are obviously more profitable to suppliers, both buyer and supplier are aware of this. Consequently, the buyer is given a market power as the larger the order, the larger the risk of losing said order is to the supplier. This provides the supplier with an incentive to offer discount. Reduces variable cost per unit = Higher profit margin per unit = Higher profit margin total.

Technical Economies

As a result of there being more than one way to produce or function, growth of a business allows them to have a greater ability to invest in technology (whereas smaller business may have a cost constraint) New machinery may also produce in a LEANER manner with less WASTE both time and materials, which reduces the firm's variable costs.
CAPITAL INVESTMENT becomes more viable as…


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