Economies and Diseconomies of Scale (for a brewery)

Economies and Diseconomies of Scale (for a brewery)

1. Economies of Scale

   • Marketing Economies
     • When buying ingredients for beer such as yeast, the firm will get cheaper prices when they buy in bulk
   • Technical Economies
     • When a brewery expands it's size, it will produce more beer than a smaller brewery. This means that if both brewerys used the same equipment, the larger brewery would be getting more use out of the machinery.
   • Financial Economies
     • Larger business can usually get cheaper loans than small businesses. This means that if the brewery were to take a loan out to purchase a new site, the intrest on the loan would be cheaper.
   • Managerial economies
     • As the Brewery grows, it will be able to afford specialist managers. They will be in charge of specific fields such as a production manager. By having specialist managers the brewery's efficiency will grow - which lowers the average cost.

2. Diseconomies of Scale

   • Bureacracy
     • A brewery may experience bureaucracy when resources are wasted in Administration.
   • Labour relations
     • As the brewery business grows, the relationships between the workers and their managers will become less personal. This means that the work force inside the brewery will care less about the success of the business, which will demotivate them and lower their production rate. It also means that any disputes between workers and mangers will not be so easily settles, and therefore the business may waste resources fixing them.
   • Co-ordination
     • If the brewery become a multi-national company, it would need extra investment to ensure the business ran smoothly in all it's plants. This will increase the need for supervision, which will bring up the average cost.