1. Economies and Diseconomies of Scale
1.1. Definition: Falling average costs due to expansion
1.2. Internal Economies of Scale
1.2.1. The cost benefits that an individual firm can enjoy when it grows.
1.2.2. Purchasing Economies
1.2.2.1. Big firms that buy lots of resources get cheaper rates.
1.2.3. Marketing Economies
1.2.3.1. Average cost of an advert is smaller for a larger firm. For example, it may be cost effective for a large firm to run its own delivery vehicles.
1.2.4. Technical Economies
1.2.4.1. Larger plants are more efficient than smaller ones. There can be more specialization and more investment in machinery.
1.2.5. Financial Economies
1.2.5.1. Large firms can get cheaper money. They also have a wider variety of sources to choose from. For example, a large limited company can raise money by selling shares.
1.2.6. Risk-bearing economies
1.2.6.1. Larger firms are more likely to have wider product ranges and sell into a wider variety of markets.
1.2.7. Managerial Economies
1.2.7.1. As firms expand they can afford specialist managers.
1.3. External Economies of Scale
1.3.1. Skilled Labour
1.3.1.1. If an industry is concentrated in an area, they may be a build up of labor with the skills and work experience required by that industry.
1.3.2. Infrastructure
1.3.2.1. If a particular industry dominates a region of roads, railways, ports or buildings, they will be shaped to suit that industry's needs.
1.3.3. Commercial Services
1.3.3.1. An established industry in a region will encourage suppliers in that industry to set up close by.
1.3.4. Co-operation
1.3.4.1. When firms in the same industry are located close to each other they are likely to collaborate.
1.4. Diseconomies of Scale
1.4.1. Definition: When a firm continues to expand average costs eventually rise.
1.4.2. Bureaucracy
1.4.2.1. If business becomes too bureaucratic, it means that too many resources are used in administration.
1.4.3. Labour Relations
1.4.3.1. If a firm becomes too big, relations between workers and managers may worsen
1.4.4. Control
1.4.4.1. A very large business may be difficult to control and co-ordinate.