Economies of scale (AQA GCSE Business): Flashcards
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Economies of scale
Economies of scale
Cost per unit decreases as businesses grow larger
Unit costs with economies of scale
Unit costs with economies of scale
Decrease
Two main types of economies of scale
Two main types of economies of scale
Purchasing power and technical improvements
Purchasing economies of scale
Purchasing economies of scale
Better deals from bulk buying due to bargaining power
Bulk purchasing
Bulk purchasing
Buying materials and supplies in large quantities
Bargaining power
Bargaining power
Ability to negotiate better deals with suppliers
Technical economies of scale
Technical economies of scale
Investing in expensive, efficient specialist machinery
Benefit of specialist machinery
Benefit of specialist machinery
Produces more items, reducing cost per unit
Diseconomies of scale
Diseconomies of scale
Average cost per unit increases as company grows too large
When diseconomies of scale occur
When diseconomies of scale occur
When companies become too large or expand too quickly
Three causes of diseconomies of scale
Three causes of diseconomies of scale
Communication problems, motivation challenges, coordination difficulties
Communication problems in large firms
Communication problems in large firms
Longer chains of command slow decision-making
Geographical spread issue
Geographical spread issue
Harder for different parts of business to communicate
Motivation challenge in large organisations
Motivation challenge in large organisations
Employees feel disconnected, reducing productivity
Coordination difficulties result
Coordination difficulties result
Need more managers, increases costs, wasted resources