Section 5: Production (Chapter 44: Economies and diseconomies of scale…
Section 5: Production
Chapter 44: Economies and diseconomies of scale
Internal economies of scale
Big firms that buy lots of resources get cheaper in price since the suppliers will offer discounts.
Occurs when a business grows and the average cost of advertising per unit falls.
Occurs when a large firm can employ specialist workers to complete tasks and can spread the cost.
Occurs when a large business can borrow money at a lower rate of interest than a smaller business.
Occurs when a business produces a range of products which means it is not dependent on just one product.
Occurs when a business invests in new technology and is able to increase production. As a result, production costs per unit will fall.
External economies of scale
If an industry is concentrated in one area, there may be a build up of labour with the skills and work experience required by that in industry. As a result, training cost will be lower when workers are recruited.
If a particular industry dominates a region, the roads, railways, ports, buildings and other facilities will be shaped to suit that industry's needs.
Ancillary and commercial securities
An established industry in a region will encourage suppliers in that industry to set up close by, so all firms in the industry will be benefit from their services.
When firms in the same industry are located close to each other, they are likely to co-operate with each other so that they can all gain.
Economies of Scale
As the firm increases its size, the average cost start to fall. This is due to
As the firm increases its size larger, the average cost will rise. This is due to
of scale which arise because of inefficiency.
Diseconomies of scale
Too many resources are used in administration. Too much time may be spent filling in forms or writing reports. Also, decision making may be too slow and communication channels too long.
Lack of understanding for workers and they may become demotivated.
Control and co-ordination
Hard to control, therefore more supervision is demanded which will make the cost rise.
Chapter 49: Quality
Chapter 45: Methods of production
Chapter 46: Productivity
Chapter 47: Lean production
Chapter 48: Technology and business