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CHAPTER 16 - Coggle Diagram
CHAPTER 16
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Scale of production
Economies of sales
Factors that lead to a reduction in average costs as a business increases in size. The five economies of scale are...
Financial economies: An advantage of larger businesses where money is more willingly lent to them [as they're more likely to pay off loan] → they're interests are also charged lower
Managerial economies: Large businesses are able to afford specialists who are efficient → can reduce business costs
Marketing economies: An advantage of large firms, which have a lower unit cost for advertising and promotion than small firms.
Technical economies: Large business are able to afford large machinery [flow production line] → produce large output & reduce avg. costs
Purchasing economies: A large bulk bought for large output. → Gives them some bulk-buying discounts that reduce costs
Diseconomies of scales
Low Morale: lots of workers in the business and they have non-contact with their senior managers → workers may feel unimportant and not valued by management → inefficiency and higher average costs.
Slow decision-making: As a business grows larger → chain of command longer. → Communication is slow and as well as decision-making will also take time, since all employees and departments may need to be consulted with.
Poor communication: A business grows large, more departments, managers, employees → communication can get difficult. Messages may be inaccurate/slow → lower efficiency and higher average costs in the business.