2. Economy of scale
Which company can make cars more cheaply? Why?
Toyota Puegot
3. Economy of Scale
As a company gets bigger, it can make things more cheaply.
Definition = As a company increases its scale of production
average costs fall.
+ Therefore, the cars Toyota produce will be a lot cheaper since
the cost per unit is relatively lower
4. Economies of scale
If It costs Nike 2000 HKD to make 100 pair
of these shoes, the average price per unit
of the shoe will be 200
If the Firm have bulk buying, it will cost
Nike 20000 HKD to make 2000 pairs of
these shoes therefore, the cost per unit of
these shoes will be 100
5. The Types of Economies of Scale
For Example,
Technical economies of scale- Large-scale businesses can
afford to invest in expensive and specialist capital machinery
- Financial economies of scale- Larger firms are usually rated
by the financial markets to be more ‘credit worthy’
, therefore smaller firms will have higher interest rate
compared with the larger ones
6. Types of Economies of scale
Purchuasing Economies of scale- buying in bulk means that you
will normally receive a discount from the supplier.
Example: these are similar to when you go into a supermarket and
are able to buy individual items cheaper in a multipack.
Marketing economies - as a firm grows the average cost of
advertising per unit will fall, leading to lower average costs.
e.g., small firms are unable to afford large scale advertising
campaigns, while their larger competitors are able to finance
television and radio campaigns using above the line promotion.
7. External Economies of Scale
Labour force
Support services and suppliers
Co-operation
