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Economies of scale - Coggle Diagram
Economies of scale
Financial
The greater the quantity of output produced, the lower the per-unit fixed cost.
EXAMPLE: To produce tap water, water companies had to invest in a huge network of water pipes stretching throughout the country.
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Marketing
Occur when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media.
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Purchasing
Larger businesses more readily have the cash and output to warrant buying materials in much larger quantities, which can bring them per-unit cost advantages smaller businesses are otherwise unable to achieve.
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Risk-bearing
Risk-bearing economies of scale allows a firm to spread risk by having a number of different products to fall back on
If there is a reduction in demand for one, it is easier to make cost savings by reducing production of that item
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Distribution
Unit distribution costs are shown to be characterised by scale economies with respect to volume but diseconomies with respect to average distance to properties
Example To produce tap water, water companies had to invest in a huge network of water pipes stretching throughout the country. The fixed cost of this investment is very high. However, since they distribute water to over 25 million households, it brings the average cost down
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Technological
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Example:
a supermarket chain such as Tesco or Sainsbury's can invest in technology that improves stock control.