• Economies of scale arise when unit costs fall as output increases

Average cost per unit:

Total production cost in period / Total out per period

  • Internal Economies of Scale

    • Purchasing economies
    • Technical
    • Managerial
    • Marketing
    • Network
    • Financial
  • External Economies of Scale

    • Arise from the industry as a whole

    • Often associated with particular geographic areas

    • Having many specialist suppliers close by

    • Access to research and development facilities

    • Pool of skilled labour to choose from

Economies of Scope

  • Where it is cheaper to produce a range of products rather than specialise in a very limited number

  • Eg

    • Hypermarkets
    • Amazon
    • Proctor & Gamble

Diseconomies of Scale

  • Diseconomies lead to a rise in unit costs
  • They happen when a business expands beyond an optimum size and loses productive efficiency
  • Diseconomies may be due to: - Control - Co-operation - Negative effects of internal politics