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19 Cards in this Set

  • Front
  • Back

economies of scale is?

as you increase output the cost of producing each item goes down

Internal economies of scale increase efficiency within an individual firm.There are different types of economies of scale?

- Technical economies of scale

- specialisation

- purchasing

- financial

- marketing

- Risk-bearing

explain technical EOS?

-technical refers to production- producing large volumes is more efficient.large businesses can afford to buy better,more advanced machinery,which might mean they need fewer staff, and wage costs will fall.


are linked to employees, Large businesses can employ managers with specialist skills and separate them out into specialised departments,which means the work is usually done more quickly and is of higher quality than in non-specialised companies


- are to do with discounts,larger businesses can negotiate with the suppliers to get discount

-they are get bigger discounts and credit days compared to smaller businesses

financial eos?

-bigger businesses can take borrow at lower interest rates compared to smaller businesses.Lenders feel more comfortable leading to bigger businesses than smaller

Marketing eos?

-is related to promotional costs,cost of an ad campaign is a fixed cost.A firm with a larger output can share the costs over more products than a business with a low output

Risk-bearing eos?

-Risk bearing economies of scale involve diversification into several different markets or catering to several different market segments.Large firms have a greater ability to bear more risk than smaller competitors.

external economies of scale make a whole industry or area more efficient


where can external economies of scale happen?

-external economies of scale happen when industries are concentrated in small geographical areas

-locating where there is large number of suppliers

-locating where there is plentiful skilled local labour supply

-locating where there is good infrastructure.Motor way and good links

Dis-economies of scale occur?

this occurs because?

when price of unit-costs increases as output increases.

-poor motivation,poor communication and poor coordination.

-larger businesses are harder to manage than small ones .

how to prevent dis economies of scale?

-Decentralisation,delegation and and strong leadership

Businesses need to have the right amount of machines,materials and people

-what factors can effect this?

-design of the product effects the mix,eg car production requires allot of components , while freshly squeezed orange juice requires one (orange)

-shortage of skilled labour

-limited by their finance

capital intensive firm has?

- lots more machinery and relatively few workers

-larger firms are more capital intensive

-higher wages can can cause companies to switch to capital intensive method of production

Advantages of CIP?

-usually works out cheaper than manual labour in long term

-machinery is able to work 24/7

-machines are easier to manage then people

-less human error is made as machines are more precise and lead to more consistent quality levels

disadvantages of capital intensive production?

-high set up costs

-machinery break down can lead to long delays

-machines are only suited for one task and is inflexible

-workers might worry that they will be replaced by machines and this will result in de motivation.

Labour intensive?

is really people heavy more workers than machinery

ad of LIP?

-people are more flexible and can be retrained if company needs new skills

-Labour intensive methods are cheaper for small - scale production

-cheaper where low cost labour is available

-workers can solve any problems that arise during production and suggest ways to improve quality

dis of LIP?

-people are harder to manage than machines

-people can be unreliable

-people need to have breaks or holidays

-wage increase means costs of labour increses