What are some examples of economies of scales?

Answer 1

Spreading Overheads: As a business grow their fixed costs are spread over a larger output and their unit costs are reduced.

Financial Economies: Banks and other lenders tend to see large

businesses as less risky investments than smaller businesses and so

charge them lower interest rates and lower fees.

Capital costs: Some items of capital equipment such as machinery are

very large and cannot be adapted for small scale operations -e.g.

robotic production lines used in the car industry.

The benefits of increased specialisation: In small businesses workers

may have to perform several roles. As businesses grow they are able to

employ more productive specialists to fill these roles -which reduces

costs overall.

Increased dimensions: The cost of building a new factory or machine

rises by only two thirds as much as the output or capacity increases.

Only large firms are able to benefit from this rule.

Managerial economies: The size of a business may double but this

does not mean that twice as many managers need to be employed.

Managerial and administrative costs do not rise in the same proportion

as output and so the unit costs of larger businesses may fall.