Economies of 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 per unit production costs

• Reduce production costs in the short run

Fill in the blank. Economies of scale is when as output _________, unit costs ________ in the long run.

• increases; decrease

• increases; increase

• decreases; increase

• decreases; decrease

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

• True

• False

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

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 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 laborers for a particular industry in a particular area

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

Fill in the blank. __________ economies of scale occur due to an increase in the scale of production within a single firm

• Internal

• External

• Complex

• Simple

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

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

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