Economies of scale

• size of firm → average costs of production
• large → cheaper
• bulk buying: buy goods in large quantities → cheaper

Internal economies of scale

• individual firm: expands → cost benefits

• Purchasing: large amount → cheaper rates

  • discounts

• Marketing: large advertising/ marketing output

  • low average costs

• Technical: larger plants → efficiency ↑

  • more specialization/ investment

• Financial:

  • profit ↑ → variety of source ↑
  • lower interest rates

• Managerial: specialist mangers → efficiency ↑

• Risk-bearing:

  • wider product ranges variety of markers
  • ↑ investment → new products → competitiveness ↑

External economies of scale

• industry grow → average costs ↓

• concentrated in particular region

• skilled labour: training costs ↓

• infrastructure: suitable facilities

• ancillary/ commercial: suppliers set up closely

• cooperation: share costs/ benefit of research/ development center

Minimum efficient scale

• size or scale → lowest average cost

Diseconomies

• expand beyond minimum efficient scale → inefficiency → average costs ↑

• Bureaucracy 官僚主義: unnecessary resource used in administration

  • slow decision-making
  • long communication chain
  • too many managers

• Labor relations: too large firm

  • worse relations between workers and managers

• Control/ coordination: difficult → supervision → costs ↑