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Economies of Scale - PowerPoint PPT Presentation

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Economies of Scale

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  1. Economies of Scale

  2. As businesses grow they have higher costs but these costs can be spread over the large number of goods produced. 1 million pins may cost only 1p each to produce 100 pins may cost 10p each to produce

  3. marketing purchasing technical financial managerial This happens because businesses are able to cut the costs of all the items needed to produce goods. The main Economies of scale are: Click one of the above to find out more…

  4. purchasing

  5. A box of 24 tins of baked beans might cost a small retailer £9.60 HOW MUCH DOES EACH TIN COST? 40p = £9.60 24 TOTAL COST NUMBER OF TINS Show hints Show answer

  6. A pallet of 10 boxes of tins baked beans might cost a medium sized retailer £48 240 HOW MUCH DOES EACH TIN COST? 20p = £48 240 TOTAL COST NUMBER OF TINS 10 BOXES OF 24 TINS = ? TINS Show hints Show answers

  7. A lorry load of 10 pallets of boxes of tins baked beans might cost a large retailer £360 HOW MANY TINS? 10 PALLETS OF 10 BOXES OF 24 TINS 2400 HOW MUCH DOES EACH TIN COST? 15p = £360 2400 TOTAL COST NUMBER OF TINS Show hints Show answers

  8. Review: Fill table

  9. marketing

  10. 1000 flyers will cost about £30 to print and post 3p HOW MUCH DOES IT COST TO REACH EACH POSSIBLE CUSTOMER? = £30 1000 TOTAL COST NUMBER OF FLYERS Show hints Show answer

  11. A newspaper advertisement may cost about £40000 and may be read by 2 million people 2p HOW MUCH DOES IT COST TO REACH EACH POSSIBLE CUSTOMER? = £40000 2000000 TOTAL COST NUMBER OF READERS Show hints Show answer

  12. A television advertisement may cost about £50000 to be screened and may be seen by 5 million people. 1p HOW MUCH DOES IT COST TO REACH EACH POSSIBLE CUSTOMER? = £50000 5000000 TOTAL COST NUMBER OF READERS Show hints Show answer

  13. Review: BIGfirms can afford to advertise on TV to reach a large number of customers. The cost can be spread amongst all the customers. SMALLfirms cannot!

  14. technical

  15. BIGfirms can afford to buy expensive machinery and to build large factories to produce many goods. The cost can be spread amongst all the customers. SMALLfirms cannot!

  16. Review: = COST OF MACHINE OUTPUT Show hint Show answer

  17. financial

  18. Large firms able to negotiate cheaper finance deals… SMALL BUSINESS INTEREST LARGE BUSINESS INTEREST

  19. Managerial • Use of specialists – accountants, marketing, lawyers, production, human resources etc. This means a high wages and salaries cost which can be spread over the large number of goods produced so the cost added to each of these is small.