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Summary Economies of Scale
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Summary of 1 pages for the course A2 Unit F583 - Economics of Work and Leisure at OCR (Economies of Scale)
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Economies of ScaleInternal Wannabes and Diseconomies of Scale
This economics concept may seem complicated, but essentially, the more a
firm produces, the cheaper it becomes to produce. However, there comes a
point where producing more actually becomes more expensive. This is
because as a firm gets bigger, it takes advantage of specialization of labor
and division of labor. Staff becomes highly skilled in their specific job and
the firm can invest in more efficient capital equipment. However, there are
also downsides to becoming larger. Staff can become complacent and
productivity can suffer. Additionally, there are diseconomies of scale where
costs per unit can actually increase if a firm becomes too large.
• The more a firm produces, the cheaper it becomes to produce
• Specialization of labor and division of labor are advantages of
growth
• Highly skilled staff and efficient capital equipment are benefits of
growth
• However, there are downsides to becoming too large
• Complacent staff and diseconomies of scale can increase costs per
unit
It's important to find the sweet spot where a firm can take advantage of the
benefits of growth without suffering from the drawbacks. The longer a
business stays around, the more it may need to evaluate its size and make
adjustments to maintain efficiency.
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