1.7 economies of scale

ways it can be measured by: sales revenu, firms market share, firms capital employed, number of employees in business
economies of scale
lower average costs of production as a firm operates on a larger scale due to an improvement in productive efficiency
economies of scale
increasing output results in the fall of unit average costs
technical economies
internal economy of scale:large firms use sophisticated machinery in an intensive way to mass produce products
financial economies
internal economy of scale:larger firms can borrow massive sums of money at lower rates of interest than smaller rivals
global marketing economies
internal economy of scale: large firms can spread high cost of international advertising by using same marketing campaign across world
purchasing economies
internal economy of scale: firms can benefit from buying resources in bulk, can lower their average costs
regional specialization
external economies of scale: area of country may have highly regarded reputation for production good or service
skilled labor
external economies of scale: provides local business with suitable educated & trained labor thereby helping to cut recruitment costs
size of market
determined by: market share, total revenue, size of workforce, profit, capital employed, market value
economies of scope
cost saving benefits of producing a large range of related products by sharing production facilities and resources
organic internal growth
occurs when a business grows internally using its own resources to increase scale of operations
inorganic external growth
occurs through dealings with outside organizations such as joint ventures, strategic alliances, mergers, takeovers (acquisitions) or franchises
joint venture
2+ businesses decide to split costs, risks, control & rewards of a business project by setting up a new legal entity
strategic alliance
2+ businesses seek to cooperate in a business venture however they remain independent organizations
takes place when 2 firms agree to form a new company
takeover (acquisition)
occurs when company buys a controlling interest in another firm, hostile
business ownership where a person/business buys a license to trade using another firms name, logo, brand, trademark
purchaser of franchise
parent company of a franchise
growing integration of the worlds economies in terms of economics, sociology, politics