734157
Description
Mind Map by LuLu Labbe, updated more than 1 year ago
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Created by LuLu Labbe
about 11 years ago
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Economies of Scale
- The advantage of large scale production that result in a lover average cost per unit;
Spread total cost over a greater range of output
- Economies of scale refer to firms/industries growing in size not just increasing output in the short-run
- Internal Economies of Scale
- Advantages that arise as a result of the firm
- Financial
- Lower i/rs due to less risk
- Lower i/rs due to less risk
- Marketing
- advertising cost spreads over larger areas
- advertising cost spreads over larger areas
- Purchasing
- Bulk buying = discounts; the major food
retailers also have monopolizing power
- Bulk buying = discounts; the major food
retailers also have monopolizing power
- Technical
- division of labour & specialist machinery
- division of labour & specialist machinery
- Risk-Bearing
- Diversification (making more than one item)
- Diversification (making more than one item)
- Financial
- Advantages that arise as a result of the firm
- External Economies of Scale
- Advantage firms can gain as a result of the growth of an industry
- Research and Development
- Growth of suppliers to the industry
- Location of Firms - Clusters
- Research and Development
- Advantage firms can gain as a result of the growth of an industry
- Internal Economies of Scale
- Economies of scale refer to firms/industries growing in size not just increasing output in the short-run
- Diseconomies of Scale
- When a firm expands to much and began
to receive disadvantages
- Internal
- Control
- Coordination
- Communication
- Indstrial Relationships
- Relationships between the union and the firm
- Relationships between the union and the firm
- Control
- External
- Competition for resources may increase
- If firms are located together the
volume of traffic may increase and
transportation cost will rise
- Competition for resources may increase
- Internal
- Issues with Economies of Scale
- Mass production might lead to a standardization of
products limiting consumer choice in the market
- Lack of market demand: Market demand
may be insufficient for economies of scale to
be fully exploited.Some businesses may be
left with a substantial amount of excess
capacity if they over-invested in new capital
- Developing monopoly power:
Business may use economies
of scale to to build up monopoly
power in there own industry and
this might lead to a reduction in
consumer welfare and higher
prices in the long
- Protecting monopoly power: Economies of
scale might be used to form a barrier to entry -
existing firms have the ability to force prices
- New firms unwiling to risk
- less competition = higher quality, less choices & lower quality
- Mass production might lead to a standardization of
products limiting consumer choice in the market
- When a firm expands to much and began
to receive disadvantages
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