increasing scale of production (internal economies of scale (technical…
increasing scale of production
internal economies of scale
bigger firms have more assets for collateral (give the bank an asset, e.g land, property) they are also less risky to lend money to, hence they will be given a lower interest rate for the bank loan.
buying raw material in bulk --> the price will fall or have more discounts
bigger firms have more money to buy specialized machinery, hire highly skilled workers and to research or develop new products to increase the efficiency of the product
advertisement and fixed cost. when the output is expanded, the cost will be spread over many units of output ; thus the average cost of the product will decrease.
extends productivity so the average cost will decrease
external economies of scale
as individually expands & grows, average cost and cost of production, the profits will increase will decrease
firms that support the big firm. they buy the materials from local producers, will help to reduce the cost of production and the average cost; thus increasing the profits
the entire industry being large and specialised e.g. India is known for their IT skills
joint marketing benefits
the growth of an industry may persuade firms in other industries to invest in new infrastructure such as new power stations.
diseconomies of scale
managing a large firm can be difficult
breaks down and disagreements between different managers in different parts of the
the average cost will increase, the cost of production will increase and the profit will decrease