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Sec4-Economies of Scale (Definitions (Economies of scale are the…
Sec4-Economies of Scale
Definitions
Economies of scale are the advantages, in the form of long run average costs, of producing on a large scale
Diseconomies of Scale are the disadvantages of expanding to a point where long run average costs rise
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Internal
Economies of Scale
Risk bearing economies- usually produce more than one product so if one fails, they can switch to the other
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Financial economies- they can raise more funds because banks are more willing to give loans, they can sell shares etc.
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Marketing economies
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Selling economies- cost of packing and transporting doesn't increase with an increase in the number of orders
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External
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Diseconomies of Scale
Increased transport costs for raw materials, workers and finished goods.
Increased competition for resources so increased prices of key sites, capital equipment and labour
Congestion. Increased Journey time so increased cost of production for transportation. Possible decline in worker productivity.