Recap
- Economies of scale arise when unit costs fall as output increases
Average cost per unit:
Total production cost in period / Total out per period
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Internal Economies of Scale
- Purchasing economies
- Technical
- Managerial
- Marketing
- Network
- Financial
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External Economies of Scale
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Arise from the industry as a whole
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Often associated with particular geographic areas
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Having many specialist suppliers close by
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Access to research and development facilities
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Pool of skilled labour to choose from
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Economies of Scope
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Where it is cheaper to produce a range of products rather than specialise in a very limited number
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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