Questions and Answers
What are economies of scale?
Benefits which occur when a firm increases output and this leads to a reduction in average cost of production.
What are internal economies of scale?
The efficiency of production within a firm.
What is purchasing in terms of economies of scale?
Relates to the firm's purchasing; for example, bulk buying supplies and raw materials.
What is managerial economies of scale?
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What is risk-bearing in the context of economies of scale?
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What is financial economies of scale?
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What is marketing economies of scale?
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What is technical economies of scale?
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What are external economies of scale?
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What is skilled labour in the context of economies of scale?
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What is infrastructure in the context of economies of scale?
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What are ancillary firms in relation to economies of scale?
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What are diseconomies of scale?
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What is bureaucracy in the context of diseconomies of scale?
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What are labour relations in the context of diseconomies of scale?
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Study Notes
Economies of Scale
- Economies of scale refer to the decrease in average production costs as a firm increases its output.
- They lead to enhanced efficiency and cost savings in the production process.
Internal Economies of Scale
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Internal economies of scale focus on a firm's operational efficiency.
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Various types include:
- Purchasing: Bulk buying of supplies reduces costs.
- Managerial: Hiring specialists improves management and productivity through division of labor.
- Risk-bearing: Larger firms can diversify into new markets, spreading risk across departments and locations.
- Financial: Larger firms have greater access to credit, enabling loans at lower interest rates due to their ability to repay.
- Marketing: Enhanced marketing strategies can be employed due to greater resources for advertising and promotion.
- Technical: Investment in advanced machinery and technology improves operational efficiency.
External Economies of Scale
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External economies of scale benefit the entire industry rather than just an individual firm.
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Factors contributing to this include:
- Skilled Labour: A skilled workforce increases productivity and reduces costs.
- Infrastructure: Improved road, electricity, and communication systems due to industry growth enhance operational efficiency.
- Ancillary Firms: Proximity to similar firms allows for efficient supply chains and reduced costs for components.
Diseconomies of Scale
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Diseconomies of scale occur when increased output results in higher average production costs.
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Key issues include:
- Bureaucracy: As firms expand, decision-making can become convoluted, causing delays and increasing costs.
- Labour Relations: Poor communication within large workforces may lead to demotivation, reducing productivity and increasing labor costs.
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Description
This quiz explores the concepts of economies and diseconomies of scale through flashcards. You'll learn definitions, examples, and types of economies of scale, enhancing your understanding of production efficiency in firms.