The benefits that can arise as a firm increases its output, leading to reduced average total costs.
1 of 18
What do economies of scale reflect?
Improvements in productive efficiency.
2 of 18
How can economies of scale give a competitive advantage?
By enabling it to pass on lower prices to consumers and/or generating higher profits that can be re-invested or passed on to shareholders.
3 of 18
What are internal economies of scale?
Those that come about as a result of the growth of the firm itself.
4 of 18
What are 4 examples of internal economies of scale?
Financial, technical, marketing, managerial.
5 of 18
What is the advantage of being a larger more reputable firm?
The more likely it is that banks and other lenders will deem it credit-worthy and a less risky recipient of loan funds.
6 of 18
What are purchasing economies of scale?
Where larger firms can take advantage of bulk-buying discounts by exerting significant buying power.
7 of 18
Why are technical economies of scale easier for large businesses?
They can afford the latest specialist capital equipment.
8 of 18
How are marketing economies of scale easier for large businesses?
They can spread huge advertising budgets over a larger output, which gives them a competitive advantage.
9 of 18
How are managerial economies of scale easier for large businesses?
High-profile CEOs, division of labour, specialist managers.
10 of 18
When do external economies of scale occur?
When firms benefit from the growth of the industry in which they operate.
11 of 18
When do diseconomies of scale occur?
When an increase in a firm’s output ceases to yield a reduction in average costs and begins to lead to an increase in average costs of production.
12 of 18
What's the main source of diseconomies of scale?
Problems with managing large businesses.
13 of 18
What are two examples of diseconomies of scale?
Coordination and control, and communication.
14 of 18
How does coordination and control affect a business?
Bigger businesses can't monitor all resources and how they are deployed, increasing wastage and threatening quality.
15 of 18
How does communication affect a business?
It can be difficult to communicate with all regional businesses in different time zone, leading to delays in action. 'Small fish in a big pond' theory.
16 of 18
What is the minimum efficient scale of product?
The lowest level of output at which average total costs of production are minimised.
17 of 18
How can achieving minimum efficient scale of product affect a market?
It acts as a barrier to entry for new competitors, leading to dominance of a small number of powerful firms.
18 of 18
Other cards in this set
Card 2
Front
What do economies of scale reflect?
Back
Improvements in productive efficiency.
Card 3
Front
How can economies of scale give a competitive advantage?
Back
Card 4
Front
What are internal economies of scale?
Back
Card 5
Front
What are 4 examples of internal economies of scale?
Comments
No comments have yet been made