Economies And Diseconomies Of Scale:
Overview
Why can a giant supermarket sell a tin of beans for less than a corner shop pays for it? The answer is economies of scale: as a business grows bigger, the cost of making each unit can fall, handing large firms a powerful advantage. But grow too big and the opposite can happen, and costs creep back up.
In this lesson you will learn the five economies of scale that lower a big firm's average costs, and the diseconomies of scale that can raise them again. You will be able to calculate average cost, explain why size cuts both ways, and judge how large a business should aim to be.
Objectives
- The concept of economies of scale with examples, e.g. purchasing, marketing, financial, managerial, technical
- The concept of diseconomies of scale with examples, e.g. poor communication, lack of commitment from employees, weak coordination
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Lesson Evaluation
Congratulations on completing the lesson on Economies And Diseconomies Of Scale:. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Economies of scale lower a firm's: A. total cost B. average (unit) cost C. selling price only D. revenue Answer: B
- A firm has total costs of 800000 dollars and makes 40000 units. Its average cost is: A. 2 dollars B. 20 dollars C. 200 dollars D. 2000 dollars Answer: B
- Getting a discount for buying materials in bulk is a: A. financial economy B. purchasing economy C. technical economy D. managerial economy Answer: B
- Which is a diseconomy of scale? A. cheaper borrowing B. bulk-buying discounts C. poor communication in a very large firm D. specialist managers Answer: C
- A large firm can borrow money more cheaply than a small one. This is a: A. marketing economy B. financial economy C. technical economy D. purchasing economy Answer: B
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