Economies and Diseconomies of Scale

What is meant by ‘economies of scale’?

• The benefits gained from producing on a small scale

• The factors that lead to a reduction in in average costs as a business increases in size.

• The increase in costs due to business expansion

• The disadvantages of expanding a business

Which of the following is NOT a type of economies of scale.

• Financial

• Purchasing

• Environmental

• Technical

Technical economies of scale occur when:

• A company uses larger machinery to improve efficiency

• A business hires more workers

• A company reduces its marketing costs

• The government provides subsidies to the firm

Which of the following is an example of a financial economy of scale?

• A large firm receives lower interest rates on loans than a smaller firm

• A business negotiates a discount for bulk purchasing raw materials

• A firm reduces costs by using specialised suppliers

• A company improves worker productivity through better training

Purchasing economies of scale occur when a firm:

• Spends more on advertising

• Sells products at lower prices than competitors

• Expands into a new market

• Buys in bulk and receives discounts

A business that benefits from economies of scale is likely to experience:

• Increased prices for raw materials

• Lower average costs

• Higher average costs

• A decrease in total revenue

Marketing economies of scale occur when:

• A small business starts selling products online

• A firm hires more managers to improve operations

• A firm reduces its advertising expenses per unit

• A company invests in better production equipment

Diseconomies of scale refer to:

• The reduction of government regulations on businesses

• The benefits of mass production

• The reduction in costs as production increases

• The factors that lead to an increase in average costs as a business grows beyond a certain size

Which of these factors is most likely to lead to diseconomies of scale?

• More efficient distribution networks

• Excessive bureaucracy in a large firm

• Improved worker productivity

• Lower production costs per unit

What happens when a business suffers from communication diseconomies of scale?

• The firm benefits from lower costs of production

• The company reduces bureaucracy and improves efficiency

• Messages get distorted and decision-making slows down

• Employees feel more connected to top management