Economies & Diseconomies of Scale (Edexcel IGCSE Economics)

This occurs when large firms buy raw materials in greater volumes and receive a bulk purchase discount, which lowers the AC

It occurs when large firms can employ specialist managers who are more efficient at certain tasks, and this efficiency lowers the AC

Managers in small firms often have to fulfil multiple roles and are less specialised

 Large firms spread the cost of advertising over a large number of sales, and this reduces the AC

They can also reuse marketing materials in different geographic regions, which further lowers the AC

Large firms often receive lower interest rates on loans than smaller firms, as they are perceived as less risky

A cheaper loan lowers the AC

Occur as a firm is able to use its machinery at a higher level of capacity due to the increased output

Thereby spreading the cost of the machinery over more units and lowering the AC

It occurs when a firm is able to spread the risk of failure by increasing its numbers of products

Leads to greater product diversification; less failure lowers AC

As the firm grows, local educational establishments will provide relevant qualifications to that industry

The firm can employ workers who are already skilled, saving on training costs

Local authorities may build access roads near large firms to ease delivery vehicle and shift worker traffic

Key suppliers may relocate to be near their largest customer to cut delivery costs and lead times

As a firm grows, other similar businesses relocate to this area to take advantage of the external factors that lower AC

 Large firms have significant amounts of paperwork, rules and regulations

This slows down decision making and production, raising AC

Accurate communication breaks down when large numbers of workers are involved, leading to inaccuracies and confusion, raising AC

Large numbers of workers and many product lines become difficult to control

A lack of coordination between aspects of production can raise AC

A large firm is likely to have many layers of hierarchy

Messages are miscommunicated and misinterpreted through the layers, raising AC