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Understanding Economies of Scale: Advantages and Challenges in Large-Scale Production

This text explores the concept of economies of scale, examining the benefits and drawbacks of expanding production in large businesses. It covers various dimensions of economies of scale, including technical efficiencies, access to specialized management, bulk purchasing advantages, and risk distribution. Additionally, the text delves into diseconomies of scale, discussing the potential inefficiencies that arise when businesses grow too large. Understanding these factors helps businesses determine the optimal scale of production to maximize benefits and minimize challenges.

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Understanding Economies of Scale: Advantages and Challenges in Large-Scale Production

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  1. Why build the worlds largest ship?

  2. Scale of production You will be able to: Understand the advantages and disadvantages of growth Explain what economies of scale are Explain what diseconomies of scale are You should be aware that a business chooses the right scale of production to gain appropriate economies of scale and minimise the diseconomies.

  3. Economies of Scale • Technical economies- large businesses can afford specialised machinery eg robots for car production. Also larger lorries can carry a lot more, but don’t cost a lot more o run compared with a van. • Specialist managers- large businesses can hire specialists who should improve efficiency eg accounts specialist • Bulk-buying or purchasing economies- bulk buy discounts, advertising costs shared over more products • Financial economies- more sources of finance available to larger businesses. Larger and cheaper loans available • Risk-bearing economies- large businesses can sell a range of products and so spread the risk of failure • Welfare economies- staff have more facilities in larger businesses

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