Costs, Scale Of Production And Break-Even Analysis: Economies And Diseconomies Of Scale (Copy)
Cheat Sheet: 4.2.2 Economies and Diseconomies of Scale
Economies of Scale (EOS)
| Type | Explanation | Example |
|---|---|---|
| Purchasing | Bulk buying reduces cost per unit | Supermarket buys wholesale goods |
| Marketing | Advertising cost spread over more units | Coca-Cola global campaigns |
| Financial | Easier access to loans, lower interest rates | Large firms secure bank credit cheaply |
| Managerial | Can afford specialist managers | HR, Finance, Marketing experts |
| Technical | Use advanced, efficient machinery | Car plants using robotics |
| Risk-Bearing | Spread risks by diversifying products | Unilever sells foods + cosmetics |
Result: Larger firms have lower average costs, stronger competitiveness.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Diseconomies of Scale (DOS)
| Type | Explanation | Example |
|---|---|---|
| Poor Communication | Too many layers → messages distorted | CEO’s orders delayed in multinational |
| Lack of Commitment | Workers feel undervalued in large firms | Staff turnover in big retail chains |
| Weak Coordination | Harder to manage large operations | Production delays at global factories |
| Bureaucracy | More paperwork, slower decisions | Government corporations |
| Loss of Flexibility | Hard to adapt quickly to changes | Large car company slow to change design |
Result: Larger firms may face higher average costs, inefficiency, and demotivation.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Quick Revision Bullets
- Economies of Scale = cost per unit ↓ as output ↑
- Types = purchasing, marketing, financial, managerial, technical, risk-bearing
- Diseconomies of Scale = cost per unit ↑ when firm too large
- Causes = poor communication, low worker motivation, weak coordination, bureaucracy
- Balance is key → grow enough for EOS, avoid DOS
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course