Economies of Scale Essay -- Economics Economy Essays

Economies of plateEconomics Test1. Define and explain all Internal Economies of outgo Internal Economies of ScaleAre reductions in long-run average constituteas the size and output of a firm increases. In former(a) words, they aradvantages that full- firen firms harbour because they are large. As they grow tumidger in the long-run they manage to raise their output faster thanthe bestride in their gist costs. The result is dispiriteder long-run averagecost.- market economies- Both in buying materials and selling itsfinished goods a large firm is n a better position than a smaller one.In buying the products it needs, the large firm often pays less for piercing materials, machinery and so on because suppliers are sure they aregoing to urinate large rewrites and do not want to lose a big customer. E.g.A producer of shoelaces will sell its products for 1 per packet toNike because it has an piece of 1000 packets per week. But for Adidasit will sell them 2 because it has only a n order of 100 packets perweek. So Nike has a lower cost per packet oppose to Adidas.In selling its products, Nike can afford to pay for expensive andprofessionally made advertisements or employ specialist salesmen mucheasier than Adidas. The large total cost of advertising can be spreadover a large output that is sold. Therefore, the average cost ofadvertising will be low.- Financial economies- If Nike is going to hook on money because it isa well cognise firm, it is considered more reliable, and less risky iseasier to borrow than Adidas. So Nike can borrow a large amount ofmoney with a lower engross rate compared to Adidas. E.g. If Nikeborrows 1, 000000 it will pay an 8% interest rate darn if Adidasborrows 1,000 it wil... ...At OQ thefirm is enjoying Internal Economies of Scale and its average costfalls. Beyond this point, that growth would make the firm lessefficient. Instead of producing with a low average cost, extraproduction would cause the average cost of apiece unit of output torise.8. Why do small firms still dwell?- New firms - Firms do not start large. In other words. numerous firms are small because they are new. Those that will be successful are expected to become large over the years.- Desire to remain in control- Sometimes owners of small firms may not want the firm to grow too large in case they lose personal control.- overleap of Finance- Small firms find it difficult to expand because they cannot raise finance. Large companies have huge retained profits and also can sell shares to the ecumenic public. Small firms can neither of these.