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Economies of Scale

% increases equally in all inputs(land, labour&capital) leads to a greater percentage change in output(goods&services).in long run only

Internal-growth in the scale of production within a firm

1. Technical-capital cost nor the running cost increase in proportion to their size, AFC decreases. Indivisibilities-big firm can use better techincal process. Processes can be linked

2. Managerial/administrative/Commercial-specialists>efficiency.

3. Financial-interest rate is higher for smaller, easier for large firms to raise their share-capital by issuing shares

4. Marketing-purchases of raw material&in selling of the product, ads

5. Social

a.     build up the goodwill of the community(sponsorship)

b.     loyalty of the firm's employers (Christmas bonuses).

6.     Increased dimension-bigger better

7.     risk bearing(monopoly),diversification

External-growth of the industry&available for many firms in it

1. Related to a particular industry-concentration of the industry in one place-cheaper training, marketing, raw material. Realised through trade associations

2.     Related to industrialisation(infrastructure)-people come to look for job, communication(maintenance of roads) can be shared. Activities of service sector rise(cleaning)

3.     information(spec.research)

4.     disintegration(subcontracting photocoping)

5.     Related to society. State provides of roads, schools. More industry>more provision

After optimum size-diseconomies


1.     Technical-one part fails, expensive

2.     Administrative-informing staff in big firms, chain of commands long

External-overcrowding of industrial areas. Congestion costs from high traffic
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