Economies and Diseconomies of Scale

Economies and Diseconomies of Scale

NCFE Level 1/2 Business and Enterprise. ​

Multiple Choice

Economies of scale are those that

• Result from changes in production techniques
• Increase due to the growth of the industry as a whole
• Generate lower unit costs for the Business

• Reduce production costs in the short run

Economies of Scale

In short, Economies of Scale allow a business to take advantage of its size, driving the unit cost of making the item or providing the service lower. There are a number of Economies that Businesses can make use of, these are:

• Purchasing Economies - Occurs when a Business buys goods in bulk and benefits from discounts

• Technical Economies - Occurs when a business invests in new technology and is able to increase production

• Marketing Economies - Occurs when a business grows and the average cost of advertising falls per unit, also the business can now advertise a brand rather than individual products

• Financial Economies​ - Occurs when a large business can borrow money at a more favourable interest rate

• Managerial Economies - Occurs when a large business can employ specialist managers​

Multiple Choice

Large firms can negotiate better interest rates on loans; this reduces the costs of borrowing for larger companies. This is an example of

• Financial economies of scale

• Technical economies of scale

• Managerial economies of scale

• Marketing economies of scale

• Risk bearing economies of scale

Multiple Choice

Machinery is likely to be efficient. what economies it indicate?

• Financial Economies
• Buying Economies
• Technical Economies
• Managerial Economies

Multiple Choice

Which of the following is an advantage of division of labour?

• Less job satisfaction

• Delays in work

• Increased speed of work

Multiple Choice

Large firms can afford to advertise and sell in larger quantities to develop brand loyalty. This is an example of

• Purchasing economies of scale

• Technical economies of scale

• Managerial economies of scale

• Marketing economies of scale

• Risk bearing economies of scale

Multiple Choice

Large firms can buy raw materials in bulk at more favourable rates. This is an example of

• Purchasing economies of scale

• Technical economies of scale

• Managerial economies of scale

• Marketing economies of scale

• Risk bearing economies of scale

Open Ended

In the UK, Cinema View PLC has four regional directors. In France, there is one regional director. Managers of each cinema report to their regional manager. Cinema View PLC advertises on television and on social media.

Explain two economies of scale that Cinema View PLC could benefit from if it increases in scale from 100 to 140 cinemas. (4)

These occur when a business grows so large that the cost per unit increase rather than decrease

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​Diseconomies of Scale

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Multiple Choice

If a firm doubles its use of inputs and finds that output increases by 50%, then it has experienced

• Growth
• Economies of scale
• Diseconomies of scale
• Evolution

Multiple Choice

Diseconomies of Scale result in a lower per unit production cost over the long run

• True

• False

Multiple Choice

Diseconomies of scale can be caused by

• Being unable to purchase stocks at a discounted price
• Management control being weakened with a larger workforce
• Traffic congestion causing delays to delivery of important stocks
  
• Advertising costs to a global audience

Open Ended

One of PP Arrow Ltd factories employees 100 workers and is spread across four buildings on a large site.  One building has offices used by managers and supervisors.  The three other buildings are used for production.  The production process is broken down into three stages, with each stage in a different building Explain TWO diseconomies of scale that this factory is likely to experience  [4]