1.5 growth IB BM

This is the cost-reducing benefits enjoyed by firms engaged in large scale operations.

Economies of scale is when average costs of production increase as the organization increases the size of its operations.

• True

• False

Answer explanation

Average costs of production decrease as the organization increases the size of its operations.

This is the cost disadvantages of growth when the business becomes too big.

Diseconomies of scale is when an organization becomes too large, causing productive inefficiencies that result in an increase in average costs of production.

• True

• False

The high fixed costs of their equipment and machinery are spread over the huge scale of output. This results in the reduction of average costs of production.

• Managerial Economies

• Financial Economies

• Technical Economies

• Marketing Economies

Large firms can borrow large sums of money at lower rates of interest. This is because they are seen as less risky to financiers. This results in the reduction of the costs of borrowing finance.

• Managerial Economies

• Financial Economies

• Technical Economies

• Marketing Economies

Large firms can divide managerial roles by employing specialist managers. This results in the fall of average costs due to higher productivity.

• Managerial Economies

• Specialization Economies

• Technical Economies

• Marketing Economies

These are the results from division of labour of the workforce. By using mass production techniques, manufacturers benefit from having specialist labour.

These specialists are responsible for a single part of the production process.

This results in the fall of average costs due to higher productivity.

• Managerial Economies

• Specialization Economies

• Technical Economies

• Marketing Economies

High costs of advertising can also be spread by large firms through using the same campaign across the world.

• Managerial Economies

• Specialization Economies

• Technical Economies

• Marketing Economies

Large firms benefit from buying resources in bulk. Discounts are usually given to bulk purchases. Large firms are able to purchase enormous quantities, so they get the biggest discounts

• Managerial Economies

• Purchasing Economies

• Technical Economies

• Marketing Economies