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22 Cards in this Set
- Front
- Back
Economies of Scale Definition
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The advantage that an organisation gains due to an increase in size. These cause an increase in productive efficiency.
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Technical economies
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Low unit costs and improve quality.
Mass production improves productivity. Reduced Distribution costs due to large scale. Improves efficiency in both admin and production. Improved communication =better customer service. |
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Specialisation economies
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Depending on the size of the business they can employee a skilled workforce.
Encourage divison of labour. Skills can be improved/developed via training. Skilled staff can become more specialised in their role increasing efficiency. |
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Purchasing Economies
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If firms can buy in bulk then suppliers can lower their costs.
Suppliers may offer greater discounts in order to guarantee a contract with a large customer. |
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Marketing economies
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A large firm can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market
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Financial economies
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smaller firms often face higher rates of interest on their overdrafts and loans.Large firms have favourable rates of borrowing.
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Research and development economies
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Large R&D expenditure enables new products and easier ways to produce goods.
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Social and welfare economies
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Pensions and medical care make it easier to recruit employees and increase morale thus having a highly motivated staff.
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Managerial and Admin economies
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Employ best managers and adopt cost effective admin procedures.
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Diseconomies of scale definition
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The disadvantages that an organisation experiences due to an increase in size. These cause a decrease in productive efficiency.
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Coordination diseconomies
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Loss of control by management
Less responsive if the level of control is reduced. More rigid and inflexible |
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Communication diseconomies
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Too many levels=less effective communication.
Harder for management to meet subordinates. Large firms usually use ineffective communication methods. Omitted employees may feel demotivated. |
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Motivation diseconomies
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Difficult to assess needs of individuals.
Less time for recognition and rewards in large firms. Large hierarchies create illusion of distance. |
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Other diseconomies
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Technical-Hard to organise
Excessive bureaucracy large hierarchy slows decision making. Staff problems-Industrial relation problems and high staff turnover Less Flexibility-Can't change needs to meet the needs of the customer. |
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Capital Intensive Production
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Methods of production that use a high level of capital equipment in comparison to other inputs, such as labour. A fully automated factory and a nuclear power station are capital intensive.
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Labour Intensive Production
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Methods of production that use high levels of labour in comparison to capital equipment. Many service industries, such as retailing, restaurants and call centres, use a large number of people in comparison to equipment.
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Factors influencing the choice between capital-intensive and labour-intensive.(Method Of Production)
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Large Scale production=Capital intensive.
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The skills and efficiency of the factors of production
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A business that depend on the skill of their workforce will be labour-intensive.
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The relative costs of labour and capital
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Labour is expensive in western europe so capital intensive is appropriate, wher labour is cheaper labour intensive is appropriate.
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The size and finanical position of a business.
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Capital equipment is expensive to buy for small business' so labour intensive is appropriate for large business' capital intensive is appropriate.
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The product or service
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A more standardised product should use capital intensive
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The customer
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If a customer want personal contact then labour intensive is appropriate.
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