Microeconomics: Resource Allocation, Forms of Competition and Market Failure
Internal economies of scale -- Savings in cost as firm expands. Created by firms’ own policies and actions. All must link back to lowering AC
1. Technical Economies of scale (Technical and engineering factors) • Factor indivisibility Economies • Make full use of large equipments • Economies arising from increased dimensions • Larger dimensions. Container principle>>Doubling of area more than doubles the volume • linked process economies • Takes a product through several stages of production, saves transport cost • Specialisation and division of labour • less training, more efficient • by product economies • waste of one = input of another 2. managerial economies of scale • expertise of professionals streamlines the work processes. • division of work increases experience within their own area • decentralisation of decision making saves time. 3. marketing economies • buy materials in bulk, saves unit cost of transportation. • dictate their price, quality and delivery. • large scale advertising, cost spread over larger volume of sales. 4. financial economies • more collateral, obtain larger loans at lower interest rates • raise capital through issuing bonds and share to the public and public have more confidence in large firms 5. risk bearing SEA HIST • advantage in bearing non insurable rise through diversifying their output or develop new markets • supply side >> obtain different sources to guard against crop failures for instance. 6. RnD economies • RnD involve high initial capital outlay. The cost can be spread over larger output if firms expand. • Improve in techniques, lowers AC
7. Welfare Economies • larger firms able to improve workplace environment to encourage higher productivity. which is a rise in output per worker which leads to lower unit of cost of production. 8. economies of scope • per unit COP fall over an increased range of products as overhead costs are shared among products. Internal diseconomies of scale 1. Complexity of management • principle
1. Technical Economies of scale (Technical and engineering factors) • Factor indivisibility Economies • Make full use of large equipments • Economies arising from increased dimensions • Larger dimensions. Container principle>>Doubling of area more than doubles the volume • linked process economies • Takes a product through several stages of production, saves transport cost • Specialisation and division of labour • less training, more efficient • by product economies • waste of one = input of another 2. managerial economies of scale • expertise of professionals streamlines the work processes. • division of work increases experience within their own area • decentralisation of decision making saves time. 3. marketing economies • buy materials in bulk, saves unit cost of transportation. • dictate their price, quality and delivery. • large scale advertising, cost spread over larger volume of sales. 4. financial economies • more collateral, obtain larger loans at lower interest rates • raise capital through issuing bonds and share to the public and public have more confidence in large firms 5. risk bearing SEA HIST • advantage in bearing non insurable rise through diversifying their output or develop new markets • supply side >> obtain different sources to guard against crop failures for instance. 6. RnD economies • RnD involve high initial capital outlay. The cost can be spread over larger output if firms expand. • Improve in techniques, lowers AC
7. Welfare Economies • larger firms able to improve workplace environment to encourage higher productivity. which is a rise in output per worker which leads to lower unit of cost of production. 8. economies of scope • per unit COP fall over an increased range of products as overhead costs are shared among products. Internal diseconomies of scale 1. Complexity of management • principle