The Firm MCQ 1 (internal and external economies of scale)

Questions and Answers

Lower cost per unit

Negotiating low-interest rates

Workers becoming more efficient

Access to cheaper raw materials Signup and view all the answers

To lower the cost per unit Signup and view all the answers

Expansion of the industry as a whole Signup and view all the answers

As more college courses become available Signup and view all the answers

The development of new machinery that can be adopted by all firms Signup and view all the answers

As suppliers expand and produce at lower cost per unit Signup and view all the answers

Lower costs for all firms in the industry Signup and view all the answers

Study Notes

Refers to the reduction in cost per unit that a firm experiences when its output increases.

Purchasing Economies: Firms can negotiate discounts for bulk buying, reducing their cost per unit.
Specialisation of Labour: As output increases, workers become more efficient, reducing the cost per unit.
Financial Economies: Firms can negotiate low-interest rates, reducing their financial costs.
Automation/Machinery: Firms can invest in machines, lowering the cost per unit and increasing efficiency.

External economies of scale occur when the expansion of an industry leads to a decrease in the cost per unit for all firms within that industry.

Lower cost of raw materials: As the production of chocolate increases, milk suppliers expand and produce at lower cost per unit, leading to a decrease in the cost of raw materials for all chocolate firms.
Access to skilled labour: As the industry expands, more college courses are offered, leading to lower recruitment costs for firms.
Improvement and Infrastructure: As the industry expands, there is improvement in infrastructure, which benefits all firms.
Research and Development: When one firm develops new machinery or technology, all firms in the industry can benefit from this innovation, leading to a decrease in costs per unit.