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Economies of scale

undiscovered

13

What does that mean? I need to know...

Reply 1

Howard

5

SiAnY

What does that mean? I need to know...

It means that you can produce a product very much cheaper if you make a lot of it.

Consider a simple object, let's take a pencil. What is it made of? Wood, graphite, paint, rubber, metal. Imagine if I asked you to make me one pencil. How much do you think it would cost? A lot of money. But factories, because they make 1000's of pencils a day produce them very much cheaper per unit.

OP

Thanks!

You can break it down into internal economies of scale, which are things that only 1 firm benefits from. Say if they use production lines to break down production into stages, instead of one person making the complete product each time. With the pencil example, this would mean one person making the graphite into the right shape, one person doing the wood, one person putting them together, one person painting it etc

Then there are external economies of scale. This is where several similar firms locate in the same area, and then benefit from better infrastructure, better trained workforce etc.

Reply 4

Imaad

there are different types, purchasing econmies of scale i.e bulk buyin, the more you buy the cheaper it is per unit

Managerial economies of scale

The bigger u get the less mangers u need per unit ( very badly described)

Advertising economies of scale, the more u produce the less it works out per unit on adverstising

Reply 5

BazTheMoney

Graphs:

economies.JPG13.2KB

diseconomies.JPG15.6KB

Reply 6

bestdeceptions

2

Economics of scale! Ah these confused me so much last year. I couldn't understand why they were "economies". But anyway. It's pretty much been explained already. Economies of scale are factors which cause average costs to fall as the scale of production increases. So.. they can be gained when a firm grows like by a merger.

Managerial economies - if 2 firms merge, then you no longer need 2 receptionists, 2 managers etc so you can get rid of staff and therefore lower costs

Financial economics - if a firm is bigger, the bank is more likely to lend them money

Purchasing economies - e.g. bulk buying (someone already mentioned)

There are more like technical and marketing...

Reply 7

spurs123

10

bestdeceptions

Economics of scale! Ah these confused me so much last year. I couldn't understand why they were "economies". But anyway. It's pretty much been explained already. Economies of scale are factors which cause average costs to fall as the scale of production increases. So.. they can be gained when a firm grows like by a merger.

Managerial economies - if 2 firms merge, then you no longer need 2 receptionists, 2 managers etc so you can get rid of staff and therefore lower costs

Financial economics - if a firm is bigger, the bank is more likely to lend them money

Purchasing economies - e.g. bulk buying (someone already mentioned)

There are more like technical and marketing...

check out www.tutor2u.net

or ne textbook!

Reply 8

CamSPSer

There are also diseconomies of scale, where things get so big that you aren't concentrating on core competencies and the business gets fat. Neoliberals argue that this is the case with many governments

Economies of scale

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