Economies of Scale PDF
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Uploaded by SeasonedCouplet
Tzu Chi University
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Summary
This document discusses economies of scale, which are the factors that cause average cost to fall as the level of output rises. It also describes diseconomies of scale which cause the average cost to rise as the scale of operation increases. It covers various aspects such as managerial, purchasing, marketing, financial, and technical aspects. Factors like weak coordination and poor communication between employees are also covered.
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Economies of scale Fall in average cost as result of a rise in level of output. 1. Managerial - Business employs specialist managers for different functional departments. - Reduces mistakes made and improves the quality of business decisions. 2. Purchasing - Large business...
Economies of scale Fall in average cost as result of a rise in level of output. 1. Managerial - Business employs specialist managers for different functional departments. - Reduces mistakes made and improves the quality of business decisions. 2. Purchasing - Large businesses buy larger quantities than small businesses. - Will benefit from discounts on bulk purchases. - Small firms can’t benefit from discount. 3. Marketing - Marketing cost should fall when a rise in output and sales - As business expands, there is no need to double marketing costs. 4. Financial - Banks will more likely borrow money from large businesses than small firms. - See small business as high risk, less likely to repay. - Large firms find it easier to borrow money. - Low rate of interest for big businesses. - High rate of interest for small businesses. 5. Technical - Large firms using advanced machinery to increase productivity. Diseconomies of scale - Factors that cause a rise in average cost as the scale of operation increases. 1. Weak coordination - As business grows larger, the number of departments increases. This may lead to coordination problems. 2. Poor communication - Business becomes too large, managers can't communicate directly with employees, slower decision making. 3. Workers are not committed - Larger businesses, managers may not have day-to-day contact with employees, causing them to feel less valued and unmotivated, higher labour turnover.
