There are benefits and drawbacks in increasing the size of operation of a business. The cost advantage is known as economies of scale. The cost disadvantage is known as diseconomies of scale.
What is a business most likely to experience after an increase in unit costs following a rise in the scale of operation?
Economies of scale
Diseconomies of scale
Why can large firms gain a competitive advantage from mergers?
Due to growth
Due to economies of scale
Due to diseconomies of scale
What does a takeover of a successful business to form a new company always cause?
What does spreading fixed costs over a larger level of output always cause?
What are purchasing economies?
An example of spreading fixed costs over a larger level of output
Barriers to communication
When a company buys in bulk and at a discount
As a firm grows in size, what happens to its unit costs?
The cost can rise or fall
A fall in unit costs following a fall in the scale of operation means the business is most likely to experience...
economies of scale.
diseconomies of scale.
What are diseconomies of scale most likely to be caused by?
Increased communication as a firm grows in size
Reduced motivation as a firm grows in size
How do small firms survive in industries dominated by large firms?
By competing on price
By competing on quality
By using economies of scale
What do economies of scale result in a fall in?