Increased capacity allows use of cheaper capital equipment. Doubling size is less than doubling costs.
3 of 32
Managerial economies of scale
Specialist managers can be employed, increasing productivity per pound spent
4 of 32
Financial economies of scale
You can negotiate lower interest rates with banks
5 of 32
Purchasing economies of scale
The larger you are the more power you have to negotiate lower prices with suppliers, as you buy in bulk.
6 of 32
Risk bearing economies of scale
Size allows you to diversify and spread the risks of failure across a wider product range
7 of 32
External economies of scale examples
Labour, commercial, co-operation, dis-integration
8 of 32
Labour economies of scale
A large number of firms in the same area may leas to local investment in educating/training people
9 of 32
Commercial services economies of scale
Smal specialist firms set up near to supply you, reducing sourcing costs
10 of 32
Co-operation economies of scale
Competitors co-operate to share the costs of research and development
11 of 32
Dis-integration
Out sourcing specialist firms to provide services so that you don't have to e.g. Cleaners, canteens
12 of 32
Diseconomies of scale
Where the unit costs rise as the business gets bigger
13 of 32
Control diseconomies of scale
Bigger firms are more difficulty to control and manage
14 of 32
Bureaucracy diseconomies of scale
There is increased paperwork and record keeping so money and time is wasted
15 of 32
Employee loyalty diseconomies of scale
Employees don't identify with the company, increased absenteeism and increased labour turnover.
16 of 32
Communications diseconomies of scale
Large firms can't communicate quickly, this leads to misunderstandings, poor and slow decision making. Have to spend more money on communications so costs increase.
17 of 32
Labour relations diseconomies of scale
Employees or larger companies are more likely to join unions, there will be increased strikes/industrial action so unit costs increase
18 of 32
Market failure
Markets don't allocate resources properly
19 of 32
Government failure
Government action creates a mis-allocation of resources, doesn't solve the market failure.
20 of 32
Indirect taxation
Paid by businesses, not consumers
21 of 32
Flat rate tax
A fixed amount of tax per unit.
22 of 32
Ad valorem
A percentage of the price of the unit.
23 of 32
Subsidies
Payments made by the government to encourage the production or use of a product
24 of 32
Producer subsidies
Paying firms to reduce their costs
25 of 32
Consumer subsidies
Paying consumers to reduce the proportion of their income spent on a product
26 of 32
Minimum prices
Price floor for a market, suppliers cannot sell the product legally at a lower price
27 of 32
Maximum prices
Price ceilings for a market, suppliers cannot sell the product legally at a higher price
28 of 32
Wealth
The value of all of factors of production that you own at one point in time
29 of 32
Income
The flow of money earned over a period of time from selling your wealth/factors of production
Comments
No comments have yet been made