scale.ppt - http\/www.bized.co.uk Economies of Scale Copyright 2006 Biz\/ed http\/www.bized.co.uk Economies of Scale The advantages of large scale

scale.ppt - http/www.bized.co.uk Economies of Scale...

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Copyright 2006 – Biz/ed Economies of Scale
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Copyright 2006 – Biz/ed Economies of Scale The advantages of large scale production that result in lower unit (average) costs (cost per unit) AC = TC / Q Economies of scale – spreads total costs over a greater range of output
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Copyright 2006 – Biz/ed Economies of Scale Internal – advantages that arise as a result of the growth of the firm Technical Commercial Financial Managerial Risk Bearing
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Copyright 2006 – Biz/ed Economies of Scale External economies of scale – the advantages firms can gain as a result of the growth of the industry – normally associated with a particular area Supply of skilled labour Reputation Local knowledge and skills Infrastructure Training facilities
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Copyright 2006 – Biz/ed Economies of Scale Capital Land Labour Output TC AC Scale A 5 3 4 100 Scale B 10 6 8 300 Assume each unit of capital = £5, Land = £8 and Labour = £2 Calculate TC and then AC for the two different ‘scales’ (‘sizes’) of production facility What happens and why?
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Copyright 2006 – Biz/ed Economies of Scale
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