What are the factors affecting economies of scale?

Answer 1

Economies of Scale is the cost advantage the business gains by increasing their efficiency in hope of cutting the average cost per unit. This is often associated by increasing output compared to unit costs and affects firms in the long run.
Factors Include:

• Technical factors, These are often comprised of changing the product design and manufacturing so that average costs in the long run are minimised. For example using advanced machinery to construct the same product using less raw materials. Bigger firms often use research and development to achieve this.
• Organisational factors, As firms grow they can afford managerial staff such as a HR and financial department to develop ways of improving productivity and division of labour. These groups will become more efficient at keeping the books, (other tasks) than an normal worker would.
• Market Power, As a business expands and becomes a bigger competitor in a the market it can lower its marketing costs by demanding discounts for products when bought in large quantities (bulk buying). For example tesco says "we want x amount of beef from a farmer for £5000" in this situation the farmer has little say as if he is unsatisfied with the price tescos have enough market power to call up other farmers who are willing to sell for this price.
• External Returns, This is when one firm benefits from lower average unit costs by taking advantage of the market industry growth. For example if businesses congregate around a certain area it is often for its transport access and vital services required for production. This area of the same businesses (car manufacturers business park) can build a name for themselves and attract other potential customers. Finally it means the firms can find a high quality supplier that is dedicated to supplying that business park.