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1.5.3BM SL50 flashcards

Economies and diseconomies of scale

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Card 1 of 501.5.3
Question

What is the difference between internal and external economies of scale?

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All 50 Flashcards — Economies and diseconomies of scale

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Card 1example

Question

What is the difference between internal and external economies of scale?

Answer

Internal come from the firm’s own growth; external come from growth of the whole industry.

💡 Hint

Firm vs industry.

Card 2example

Question

Fill the gap: Diseconomies of scale mean average costs ______ when the firm becomes too large.

Answer

Rise.

💡 Hint

Too big = costs up.

Card 3example

Question

In an economies of scale answer, what is Step 1?

Answer

Name the specific type (e.g. purchasing, technical, marketing).

💡 Hint

Name the TYPE first.

Card 4example

Question

Write the 4-step structure for economies of scale questions.

Answer

1) Name the type. 2) Explain the mechanism. 3) Apply to the case. 4) If relevant, mention diseconomies.

💡 Hint

Name + how + apply + balance.

Card 5example

Question

If a business gets cheaper inputs because it buys more, is that internal or external?

Answer

Internal economy of scale.

💡 Hint

Firm-driven benefit.

Card 6example

Question

What are diseconomies of scale?

Answer

When a business becomes too large and its average costs start rising instead of falling.

💡 Hint

Too big = costs rise.

Card 7example

Question

What are economies of scale?

Answer

When a business grows and its average cost per unit falls as output increases.

💡 Hint

Bigger output, lower unit cost.

Card 8example

Question

Give one reason why communication worsens as firms grow very large.

Answer

More layers of management mean messages travel further and can be delayed or distorted.

💡 Hint

More layers = more noise.

Card 9example

Question

What are purchasing economies of scale?

Answer

Bulk buying allows negotiation of discounts, reducing input cost per unit.

💡 Hint

Bigger orders, cheaper inputs.

Card 10example

Question

Fill the gap: Economies of scale mean average costs ______ as output increases.

Answer

Fall.

💡 Hint

Scale = lower unit cost.

Card 11example

Question

How can communication problems cause diseconomies of scale?

Answer

Messages get delayed or distorted through many layers, causing errors and slower responses.

💡 Hint

More layers, worse communication.

Card 12example

Question

Name one internal economy of scale.

Answer

Purchasing economies (bulk buying reduces input cost per unit).

💡 Hint

Name the TYPE.

Card 13example

Question

Give an example of an internal economy of scale.

Answer

Purchasing economy: bulk buying reduces input cost per unit.

💡 Hint

Internal = firm grows.

Card 14example

Question

In an economies of scale answer, what is Step 2?

Answer

Explain the mechanism: how growth reduces average cost per unit.

💡 Hint

Explain HOW it works.

Card 15example

Question

Name the SIX internal economies of scale.

Answer

Purchasing, technical, financial, marketing, managerial, risk-bearing.

💡 Hint

Memorise the 6.

Card 16example

Question

What are financial economies of scale?

Answer

Large firms can access cheaper finance (lower interest rates) because lenders view them as lower risk.

💡 Hint

Lower interest for big firms.

Card 17example

Question

How can coordination issues increase average costs?

Answer

Teams may duplicate work or make inconsistent decisions, wasting time and resources.

💡 Hint

Misalignment wastes resources.

Card 18example

Question

If a business benefits from a larger pool of skilled labour because the industry cluster grew, is that internal or external?

Answer

External economy of scale.

💡 Hint

Industry-driven benefit.

Card 19example

Question

Give a strong 1-sentence “purchasing economy” mechanism.

Answer

Buying inputs in larger quantities allows discounts, reducing input cost per unit and lowering average cost.

💡 Hint

Bulk buy = lower unit cost.

Card 20example

Question

Name two internal economies of scale and explain them briefly.

Answer

Purchasing: bulk discounts reduce input cost. Marketing: spread ad costs over more units.

💡 Hint

Name + how.

Card 21example

Question

What are managerial economies of scale?

Answer

Large firms can hire specialist managers (finance, marketing, HR) who improve efficiency and decisions.

💡 Hint

Specialists improve performance.

Card 22example

Question

Why does “apply to the business” score marks?

Answer

Because it links the concept to real case facts (inputs, output scale, market, operations), showing AO2 application.

💡 Hint

Case facts = marks.

Card 23example

Question

Give an example of an external economy of scale.

Answer

An industry cluster creates more specialist suppliers or a larger pool of skilled labour, lowering costs for firms in that area.

💡 Hint

External = industry grows.

Card 24example

Question

In an economies of scale answer, what is Step 3?

Answer

Apply it to the business in the question (use the case facts).

💡 Hint

Always apply to the case.

Card 25example

Question

How can coordination difficulties increase costs in very large firms?

Answer

Departments may work at cross-purposes, creating duplication and inefficiency.

💡 Hint

Harder to align teams.

Card 26example

Question

What are diseconomies of scale in one line?

Answer

When average costs rise because the business has become too large.

💡 Hint

Too big = inefficiency.

Card 27example

Question

How does bureaucracy create diseconomies of scale?

Answer

Extra rules, approvals and paperwork slow decisions and raise administrative costs.

💡 Hint

More rules, more cost.

Card 28example

Question

What are technical economies of scale?

Answer

Large firms can afford specialised machinery and use it efficiently at high output, lowering average cost.

💡 Hint

Tech + high output.

Card 29example

Question

List two common causes of diseconomies of scale.

Answer

Communication problems and coordination difficulties (also: bureaucracy, demotivation).

💡 Hint

Think: complexity.

Card 30example

Question

What does “external economies” mean in one sentence?

Answer

Cost advantages that come from the growth of the industry, not just one firm.

💡 Hint

Industry growth helps firms.

Card 31example

Question

How can motivation issues lead to diseconomies of scale?

Answer

Employees may feel like a small cog, reducing effort and increasing absenteeism/turnover.

💡 Hint

Low pride = low productivity.

Card 32example

Question

Internal vs external economies: which comes from industry growth?

Answer

External economies of scale.

💡 Hint

Industry-driven.

Card 33example

Question

What are marketing economies of scale?

Answer

Advertising/marketing costs are spread over more units sold, reducing average marketing cost per unit.

💡 Hint

Same ad, more sales.

Card 34example

Question

Why are most exam questions about economies of scale focused on internal economies?

Answer

Because students can clearly name and explain specific internal types (purchasing, technical, etc.) and apply them to a firm.

💡 Hint

Name the type + mechanism.

Card 35example

Question

What are technical economies of scale (in exam wording)?

Answer

Specialised machinery becomes cost-effective at high output, lowering average cost per unit.

💡 Hint

High output justifies machines.

Card 36example

Question

What is glib but wrong in an exam: “external economies come from exporting”?

Answer

Wrong — external economies come from industry growth (suppliers, labour, infrastructure), not exporting itself.

💡 Hint

External = industry conditions.

Card 37example

Question

What is a weak exam statement about economies of scale?

Answer

“The business will get economies of scale.” (No type, no mechanism, no application.)

💡 Hint

Too vague.

Card 38example

Question

Why can large firms lose the “personal touch” as they grow?

Answer

They become less flexible and may provide weaker customer relationships/service quality.

💡 Hint

Big firms can feel distant.

Card 39example

Question

Exam warning: What is a common mistake in economies of scale questions?

Answer

Writing “the business will get economies of scale” without naming the type or explaining the mechanism.

💡 Hint

Be specific.

Card 40example

Question

List two causes of diseconomies of scale.

Answer

Communication problems and bureaucracy (also: coordination issues, demotivation).

💡 Hint

Think: people + systems.

Card 41example

Question

When should you mention diseconomies of scale in an exam answer?

Answer

If the question asks for drawbacks or if growth is rapid/large enough that “too big” problems are relevant.

💡 Hint

Show balance if relevant.

Card 42example

Question

When might you add diseconomies to an evaluation?

Answer

If rapid growth could reduce service quality, slow decisions, or raise admin costs — show trade-offs.

💡 Hint

Growth has limits.

Card 43example

Question

What is the key exam rule for economies of scale questions?

Answer

Name the type and explain the mechanism, then apply it to the business.

💡 Hint

Name + how + apply.

Card 44example

Question

Exam warning: When asked to “state two internal economies of scale”, what must you do?

Answer

NAME the types (e.g. purchasing and marketing), not just say “economies of scale”.

💡 Hint

Name the type.

Card 45example

Question

One-line exam rule for top marks on economies of scale?

Answer

Always name the specific type, explain the mechanism, and apply it to the business.

💡 Hint

Name + how + apply.

Card 46example

Question

Quick contrast: Economies of scale vs diseconomies of scale?

Answer

Economies: average costs fall as output rises. Diseconomies: average costs rise because the firm is too large.

💡 Hint

Fall vs rise.

Card 47example

Question

What are risk-bearing economies of scale?

Answer

Large firms can diversify into different products/markets, spreading risk if one area performs badly.

💡 Hint

Diversify to spread risk.

Card 48example

Question

Exam tip: When asked about economies of scale, what should you focus on first?

Answer

Internal economies (name the type + mechanism), then add external if relevant.

💡 Hint

Internal first.

Card 49example

Question

Quick check: If lower costs come from more local suppliers because the industry expanded, is that internal or external?

Answer

External economy of scale.

💡 Hint

Industry-driven benefit.

Card 50example

Question

Why can large firms become slower at decision-making?

Answer

Bureaucracy increases with more management layers, delaying decisions and implementation.

💡 Hint

Bureaucracy slows action.

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