Purchasing economies The greater the quantities bought of raw materials and other supplies, the lower the average cost Large buyers are able to negotiate larger discounts as they have more market power Bulk orders may save on packaging and transport costs

Marketing economies Marketing costs will be lower per unit sold the greater the volume of sales Eg the cost of an advertisement is the same, however many sales it generates Large companies can afford their own fleets of vans The cost of selling 30 product lines is not double that of selling 15 product lines http://www.youtube.com/watch?v=TnzFRV1LwIo

Technical economies Larger scale machinery or plant can often be more efficient than smaller scale plant. A boat which is twice the length, breadth and depth of another boat can carry 8 times as much cargo (the principle of increased dimensions) A larger supermarket costs less per sq ft to build than a small supermarket

Technical economies contd. The larger the scale of production, the more likely it is that resources will be fully utilised (indivisibility) Eg a small building firm may only utilise a truck a few hours a week, a large firm would use it more intensively, but the truck costs the same to buy for both firms; the average cost to the larger firm falls The law of multiples; as firms grow, they can employ a balance of machines so that when they operate together, they are all running at full capacity; using more slower machines can compensate for the loss of speed, keeping up with the capacity of the faster machines

Specialisation and Managerial economies In a small firm, the owner might be part time salesperson, accountant, receptionist and manager A large firm will employ specialist staff, likely to lead to greater efficiency and therefore lower costs

Financial economies Small firms often find it difficult and expensive to raise finance Small firms are charged higher rates of interest as they are a higher risk Large firms have a greater choice of finance, including share issues, and it is likely to be much cheaper as they are seen to be less of a risk

Risk bearing economies Large firms are usually less exposed to risk than small firms because they are able to spread risk by diversifying their output, markets, sources of supply and finance, and the processes by which they manufacture their output This makes them less vulnerable to sudden changes in demand Funds may be spent on R&D