Unit 1.6 Economies of Scale

Economies of scale are the reduction in costs of production achieved through increased output.

• True
• False

Internal 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

Which of the following is not a cause of internal diseconomies of scale?

• Poor communication between different departments
• Lack of staff morale and motivation
  
• Less control, direction and coordination of human resources
• Late deliveries due to congestion in busy locations

If a firm increases its use of all factors of production but sees an increase in its average costs, this is a sign of

• Internal diseconomies of scale
• External returns to scale
  
• Diminishing marginal returns
  
• Decreasing returns to scale

Internal 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
• Reduce production costs in the short run

External economies of scale can arise from

• Bulk purchases of raw materials, parts and components at favourable prices
• The introduction and use of advanced technology
• Specialised back-up services available in a particular region
• Lower interest rates, thus reducing the cost of borrowing to large companies

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

• Industry, Location
• Business, Location
  
• Industry, Size
• Business, Size

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

If a firm increases its use of all factors of production but sees an increase in its average costs, this is a sign of

• Internal diseconomies of scale
• External diseconomies of scale
  
• External economies of scale
  
• External diseconomies of scale

Technological economies of scale can only be feasible for a business if

• Banks lend money for the purchase of highly expensive technology
• Capital equipment is capable of producing mass units of a product in a short time
  
• There is an economic boom
• There is sufficient market demand for the product