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economics economics Presentation Transcript

  • Economies and Diseconomies of Scale
  • Economies of Scale
    • As businesses grow – costs of production decrease
    • Bigger businesses gain some advantages over smaller businesses through Economies of Scale
    • There are two types of Economies of Scale:
      • Internal Economies
      • External Economies
  • Internal and External Economies
    • Internal Economies
    • Those Specifically related to the business itself eg:-
    • Production
    • Purchasing
    • Marketing
    • Financial
    • Managerial
    • External Economies
    • Benefits the whole industry and not specific firms
    • Skilled labour in the area
    • Better road and rail networks
    • Improves the reputation of the area
    • Attracts other businesses
    • Raw Material Supply, by products, waste materials
  • Sources of Economies
    • Division of Labor
    • Technical Economies
    • Inventories
    • Specialization
    • Cumulative Volume Economies
    • Specialized Equipment
    • Indivisibility
    • Large Machines Integrative Processes
    • Increased Dimensions
    • Set Up costs
    • Overheads
  • Sources of Economies
    • Marketing Economies
    • Managerial
    • Financial
    • Advertising Expenditure
    • R&D for New Product Development
    • Specialization
  • Example:
    • Daimler Chrysler own the following brands:
    Purchasing economies of scale can be achieved by bulk buying parts that can be used across all brands such as Wiper Blades
  • Diseconomies of Scale
    • There are limits to the amount a business can grow
    • If businesses grow to large they start to suffer from Diseconomies of Scale
    • These diseconomies happen because the larger the business the more difficult it becomes to manage
  •  
  • Some common diseconomies of scale:
    • Decision making
    • Managerial problems
    • Communication problems
    • Co-ordination/control problems
    • Staffing problems
  •  
  •  
  • Task:
    • Peter, a sole trader who owns a grocery shop, is in trouble because of a supermarket which has just opened. The supermarket benefits from economies of scale. Select and explain (in detail) how four of these economies will benefit the supermarket.
    • Explain how Diseconomies of Scale could effect the Virgin Group?