Chapter 17 - Economies of Scale IGCSE Economics

Chapter 17

Economies of Scale

Drag and Drop

Average cost is the cost of producing ​

Placeholder

of a good. When a firm can reduce its ​

Placeholder

of production, it can either charge ​

Placeholder

or increase its ​

Placeholder

. This gives the firm an advantage over its competitors and why ​

Placeholder

tend to have lower prices than small firms.

Drag these tiles and drop them in the correct blank above

one unit

average cost

lower prices

profits

large firms

Drag and Drop

Economies of scale are falling ​

Placeholder

due to ​

Placeholder

. There are two types: ​

Placeholder

and ​

Placeholder

. When a firm becomes too big, it might experience ​

Placeholder

where average costs start to rise again.

Drag these tiles and drop them in the correct blank above

average costs

expansion

internal economies of scale

external economies of scale

diseconomies of scale

total costs

Multiple Choice

Internal economies of scale affect costs how?

• Falling total costs

• Rising average costs

• Rising variable costs

• Falling average costs

Multiple Choice

Employing specialist cost accountant in a growing business is an example of which type of internal economies of scale?

• Technical economies of scale

• Risk bearing economies of scale

• Managerial economies of scale

• Marketing economies of scale

Multiple Choice

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

• Financial Economies

• Buying Economies

• Technical Economies

• Managerial Economies

Match

Match the following internal economies of scale (risk bearing is missing)

• Purchasing economies

• Marketing economies

• Financial economies

• Managerial economies

• Technical economies

Gain discounts for bulk buying = lower average costs

Spread the high costs of advertising to more units = lower average costs

Borrow money at lower rates of interest = lower average costs

Employing specialists who make less mistakes = lower average costs

Use expensive equipment and machinery to mass produce = lower average costs

• Gain discounts for bulk buying = lower average costs

• Spread the high costs of advertising to more units = lower average costs

• Borrow money at lower rates of interest = lower average costs

• Employing specialists who make less mistakes = lower average costs

• Use expensive equipment and machinery to mass produce = lower average costs

Multiple Choice

What are external economies of scale?

• Cost benefits that an individual firm can enjoy when it expands

• Buying goods in large quantities, which is usually cheaper than buying in small quantities

• Cost benefits that all firms in an industry can enjoy when the industry expands

• Rising average costs when a firm becomes too big

Multiple Choice

External economies of scale are cost savings available to the whole ________ as a result of its __________.

• Industry, Location

• Business, Location

• Industry, Size

• Business, Size

Multiple Choice

External economies of scale can arise from

• Bulk purchases of raw materials, parts and components at favorable prices by a particular business/firm

• Purchase and use of physical/human capital by a particular business/firm

• Greater availability of skilled labourers for a particular industry in a particular area

• A business/firm being able to obtain lower interest rates on loans

Match

Match the following external economies of scale

• Skilled labour

• Infrastructure

• Similar Businesses in the Area

• Access to Suppliers

Don't need to spend a lot recruiting workers who make less mistakes = lower average costs

Roads, bridges, airports available to support your industry = lower average costs

Firms in the industry can share resources and collaborate = lower average costs

No problem finding your raw material and low shipping costs = lower average costs

• Don't need to spend a lot recruiting workers who make less mistakes = lower average costs

• Roads, bridges, airports available to support your industry = lower average costs

• Firms in the industry can share resources and collaborate = lower average costs

• No problem finding your raw material and low shipping costs = lower average costs

Multiple Choice

Larger firms are better able to diversify into a range of product areas or markets and thus lessen their risk. 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

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

• True

• False

Multiple Choice

What are diseconomies of scale?

• Size of a business

• Falling average costs due to expansion

• Rising average costs when a firm becomes too big

• Cost benefits that all firms in an industry can enjoy when the industry expands

Multiple Choice

Diseconomies of scale can be caused by

• Being unable to purchase stocks at a discounted price

• Poor management being unable to effectively control a large workforce

• Traffic congestion causing delays to delivery of important stocks

• Advertising costs to a global audience

Multiple Choice

---------- resulting from a firm growing too large.

• Diseconomies of Scale

• Internal Economies of Scale

• External Economies of Scale

Match

Match the following diseconomies of scale

• Poor communication

• Distance between senior staff and worker

• Lack of control

• Bureaucracy

Slow down decision-making = increased average costs

Workers feel alone and managers don't understand the workers = increased average costs

Top managers doesn't know what their employees are doing; no control = increased average costs

Too much paperwork = increased average costs

• Slow down decision-making = increased average costs

• Workers feel alone and managers don't understand the workers = increased average costs

• Top managers doesn't know what their employees are doing; no control = increased average costs

• Too much paperwork = increased average costs