Economies of Scale Flashcards

Name: Shalom Education
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What are economies of scale?

Cost savings when a firm produces more, so average cost per unit falls.

The long run, when a firm can change all its inputs.

Cost savings that come from within the firm as it grows.

Cost savings from the growth of the industry or area, e.g. shared suppliers or a skilled labour pool.

Buying large amounts to get lower input prices per unit.

Using bigger or better machines or methods, so unit costs fall.

Using specialist managers to improve efficiency, spreading their pay over more output.

Large firms can borrow at lower interest rates and spread fees, cutting unit cost.

Spreading advertising and distribution costs over more sales, so cost per unit falls.

On the downward part, where average cost falls as output rises.

The lowest level of output where long run average cost is at its minimum.

They lower firms' costs, so firms may charge lower prices.