Economies and Diseconomies of Scale (Internal (Internal Economies : Refers…
Economies and Diseconomies of Scale
: Refers to the decrease in average cost when the scale of production expands.
1) :star:Technical Economies of Scale
1) A firm is able to take a product through several steps in its manufacture.
2) Saves time and costs in transport, hence lower unit costs.
Specialization and division of labour
2) Managerial Economies of Scale
3) Organisational Economies of Scale
4) Purchasing Economies of Scale
5) Financial Economies of Scale
: Refers to the increase in average cost when the scale of production expands.
1) When division of labor increases to a high degree workers may become demotivated as performing the same task all the time may lead to boredom.
2) This is especially true if the task is mundane. If this happens, labour productivity will fall which will lead to rise in average cost.
1) Problems in communication arise when firms expand, and the task of coordinating and managing activities becomes increasingly difficult.
2) Results in delays in production that can be costly to the firm.
3) The larger the firm, the greater the chances of problems in communications.
4) Firms with large number of employees working in many levels of hierarchy may experience greater dissatisfaction at the lower hierarchies , leading to lower productivites.
: Refers to the increase in average cost when the industry expands.
: Refers to the decrease in everage cost when the industry expands.