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3.3.3 ECONOMIES OF SCALE, image, Point on LRAC lowest point on LRAC where…
3.3.3 ECONOMIES OF SCALE
ECONOMIES OF SCALE
-Economies of scale, advantages of big firms of large scale production so they produce at lower average cost compared to smaller firms.
% increase in output is greater than % increase in input.
Diseconomies of scale: Disadvantage of big businesses of large scale production. % increase in output is lower than % increase in input.
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EXTERNAL
Labour: Businesses established in an area can find it easier to recruit labour eg Silicon Valley.
The larger the industry the more investment into research and education..
-Firms can hire staff who have been trained by other businesses.
Support services: those who provide support services for large businesses are likely to move to those areas.
DISECONOMIES OF SCALE
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Management/ coordination and control: in a large business it becomes harder to keep control.
Communciation- communication can be slow/
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Point on LRAC lowest point on LRAC where economies of scale are met and constant returns to scale happen.
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