Economies of scale

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economies of scale
a reduction in unit costs acheived as the scale of production increases
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purchasing
gained as a benefit of being able to purchase supplies in larger quantities which means a larger discount is more likely
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financial
larger firms are more likely to be able to negotiate cheaper loans and easier for them to get loans as they are less risk to lenders
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managerial
larger firms can employ specialist managers to allow to firm to operate more efficiently amd effectively
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technical
bigger firm can gain benefit of buying more effective equiptment that smaller firms are unable to invest in
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marketing
larger firms are able to use more effective methods of marketing, above the line methods are only available to larger firms
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risk-bearing
larger firms can spread risk by expanding into different products - could even take over suppliers which allows them to reduce costs
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concentration
firms benefit as industry grows in specific region as skilled labour moves to that area, local training colleges and suppliers specific to industry locate nearby all reducing costs
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information
information services, such as internet, are set up and benefit industry
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communication problems
bigger firm will have more difficulty communicating effectively to large no. of staff makes decision making more complex and slow
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problems managing production process
large scale production means increased storage costs and maybe the need for physical growth which involves fixed costs
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reduction in morale
workers tend to feel sense of belonging and feel less important as firm grows, will be less inclined to push themselves, labour turnover + absentee rates rise therefore costs rise too
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Other cards in this set

Card 2

Front

gained as a benefit of being able to purchase supplies in larger quantities which means a larger discount is more likely

Back

purchasing

Card 3

Front

larger firms are more likely to be able to negotiate cheaper loans and easier for them to get loans as they are less risk to lenders

Back

Preview of the back of card 3

Card 4

Front

larger firms can employ specialist managers to allow to firm to operate more efficiently amd effectively

Back

Preview of the back of card 4

Card 5

Front

bigger firm can gain benefit of buying more effective equiptment that smaller firms are unable to invest in

Back

Preview of the back of card 5
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