Economies of Scale

15 flashcards · Economics · by Addaneye

  1. What are the six types of internal economies of scale?

    Risk-bearing economies Managerial economies Financial economies Purchasing economies Technical economies Marketing economies

  2. What is risk-bearing economies?

    Big firms can use their profits to diversify, reducing the cost of failure in one sector

  3. What is managerial economies?

    When big firms hire specialist staff to increase productivity and reduce long run average costs

  4. What is financial economies?

    As firms expand, they become less risky and so they can borrow at lower interest rates which will reduce repayment costs and reduce long run average costs

  5. What is purchasing economies?

    When big companies can bulk buy and reduce their costs in the long run through negotiations

  6. What is technical economies?

    When big firms invest in specialist capital to increase their productivity and reduce their long run average cost

  7. What is marketing economies?

    When big firms spread their marketing costs across many units, decreasing their long run average marketing costs

  8. What is internal diseconomies of scale?

    When an organisation grows too much and its long run average cost starts to increase

  9. What are the three reasons for internal diseconomies of scale?

    Alienation Bureaucracy Communication

  10. How does alienation lead to internal diseconomies of scale?

    As employees become alienated from each other, they lose motivation which leads to a fall in productivity and a rise in long run average costs

  11. How does bureaucracy lead to internal diseconomies of sale?

    Excessive administration costs that a firm has to pay for when it expands, which increases long run average costs

  12. How does slow communication lead to diseconomies of scale?

    Slower communication will reduce productivity and increase long run average costs

  13. What is the minimum efficient scale?

    When a firm first reaches it lowest LRAC

  14. What are external economies of scale?

    When a firm's long run average costs decrease as industry output increases (shown by a downward shift of LRAC)

  15. What are internal economies of scale?

    When a firm's long run average costs fall as they expand (show by a movement)