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21 Cards in this Set
- Front
- Back
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Economies of scale |
The benefits gained through producing on a larger scale, reduction in costs as output increases |
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Diseconomies of scale |
An increase in long run average costs as output increases past the minimum efficient scale |
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Minimum efficient scale |
The lowest level of output where LRAC is minimised |
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Internal economies of scale |
Falling LRACs when output is increased for a firm |
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External economies of scale |
E of S that results in a fall in costs for all firms in an industry |
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The 6 types of economies of scale |
Financial Technical Marketing Managerial Purchasing Risk bearing |
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Financial economies of scale |
As firms grow they can take on bigger loans at a lower interest rate |
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Technical EoS |
As a firm expands it can more easily afford technology that improves productivity |
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Managerial EoS |
As a firm expands it can more easily afford specialist workers who increase productivity |
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Marketing EoS |
Advertising and marketing is bigger as it’s spread over a larger quantity of output, increases public awareness |
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Purchasing EoS |
Bigger firms can buy materials in bigger bulk and lower prices |
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Risk bearing EoS |
Bigger companies have more of a product range so failure of one product is less influential |
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Profit maximisation |
Firm objective to make as much money as possible |
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Normal profits |
Minimum amount of of profit that will keep a firm in an industry, revenue=costs |
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Supernormal profits |
Revenue > costs |
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Short run shutdown point |
Total revenue < total variable costs |
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Long run shutdown point |
Total revenue > total variable costs |
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Three types of diseconomies of scale |
Control Co-ordination Co-operation |
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Control DoS |
Difficulty of monitoring the productivity and quality of output of a large firm |
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Co-ordination DoS |
Hard to coordinate different stages of production across countries |
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Co-operation DoS |
Working in large companies can lead to worker alienation and loss of morale |
