Econs 1

Front 1

Specialisation and division of labour

Scale of production increase -> greater scope for specialisation of man and machines -> allows production processes to be broken down into similar and repetitive processes

Back 1

-> less training is needed, workers can be more productive in their particular job, less time loss in workers switching from one operation to another thus lowering unit costs

Front 2

Indivisibilities:

Certain machines only come in fixed & large sizes. Only large firms able to utilise these large machines efficiently. -> producing on a large scale will allow firm to spread huge capital outlay of machine over larger output levels, lowering uc

Back 2

R&D: Large firms will have resources to support research leading to the development of better products & cheaper techniques of production

W/ large scale of production, it is able to spread huge R&D costs over a larger output, thereby lowering costs

Front 3

Marketing economies

1) Bulk Purchase

Large firms have bargaining advantage, and given preferential treatment by suppliers bc they buy raw and processed materials and components in bulk -> obtain goods at lower costs, and better terms wrt to quality and delivery, thereby lowering uc

Back 3

2) Large Scale Advertising

For large firms, although the advertising expenditure may be substantial, the advertising cost per unit may be lower than that of smaller firm bc of larger output level

Front 4

Administrative & Managerial Economies

1) administration costs will not rise in proportion to size of an order, cost of administration per unit of output, spread over a much larger output, is much reduced

Back 4

2) Each managerial role can also be allocated to specialist in that field. Large firms can buy management services and retain best management w attractive pay. This would result in higher productivity and turnover costs.

Front 5

Financial economies

Large firms with higher sales vol and more assets to offer as collateral is deemed by lenders to be more credit-worthy compared to small firm. Banking and financial institutions more willing to offer loans or extend credit to large firms. Enjoy better terms -> lower uc. Large firms can also raise funds by issuing shares to the public, cheaper alternative than borrowing from banks as no interest payments r incurred.

Back 5

:( Management difficulties

1) Problems in coordination and communication

As firms expand in scale of production, no. of depts and sub depts increases, task of coordinating activities become increasingly difficult -> inefficiency and higher uc.

Front 6

Larger the firm, greater likelihood of communication breakdown & misinterpretation of info -> delays in production which can be costly to firm.

2) Low morale: Large firm employing large no. of workers will face difficulties ensuring ensuring everyone is happy & equally well treated. People at lower end of hierarchy feeling dissatisfied -> absenteeism & low productivity -> higher uc

Back 6

As firms get bigger by increasing scale of production, high cost saving they enjoy from internal EOS can offset the higher cost that may incur due to some mismanagement and overall uc will fall. However, when firm gets too large - expands beyond MES, the uc will rise as the managerial diseconomies of scale is v large and this leads to a huge rise in uc and thus offset the cost savings enjoyed from var internal EOS

Front 7

industries that involved v high set up costs -> great potential in reducing the avg cop as there is more room for TC to be spread over a larger output -> substantial economies of scale to be enjoyed -> MES relatively large to industry demand

Back 7

Revenue advantage

Pricing power: big firms enjoy bigger mkt share and thus face dd curve that are steeper and more price elastic, enable them to enjoy pricing power eg. predatory pricing

Front 8

Revenue advantage

Non-price competition: Big firms more able to engage themselves in.. in their bid to secure greater mkt share pdt development eg. R&D and innovation, product promotion eg. branding through advertisemnets -> increase mkt power and increase dd -> set higher prices to gain more revenue

Back 8

if increase in rev more than cost, profits will rise -> use profits to grow into a conglomerate by diversifying into diff mkts to further increase rev and at the same time lower risks of businesses and minimise potential losses

Front 9

External EOS

Economies of Concentration

firms carry out similar activities v closer to one another

- trained workforce: dd for labour w necessary skills increases, trng schs set up -> pool of skilled workers in readily available and thus reduce costs that r originally incurred by firms to train employees

Back 9

- better infrastructure:

due to concentration of industry in the region, facilities such as better transport, banking and telecommunication systems may be set up to serve the needs of the industry, thereby lowering operating cost

Front 10

Economies of Information

These economies take the form of common info services provided by trade association or central research centres through journals and newsletters. The firms can obtain info cheaply.

Back 10

Economies of Disintegration: when industry is heavily localised, it becomes possible for firms to split up production process and specialise in a single process or manufacture of a single component. As the components are mass produced to supply the whole industry, they can be produced and supplied at much lower costs.