Which are better - large firms or small ones?

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Presentation transcript:

Which are better - large firms or small ones?

Economies of Scale Benefits of being BIG!

What happens to costs as a firm grows? Add Low outputs/high unit cost, Minimum efficient scale, negative slope shows economies of scale, positive slope shows diseconomies of scale.

Quick questions 1. What is LRAC? 2. What shape is LRAC? What is happening on the negative slope? What is the name for the lowest cost point? Give one advantage large firms have?

Small scale operation Any Benefits?

Why might small scale production be better for customer, employee, firm, environment?

Large Scale Operations Any benefits?

Key terms Managerial economies of scale Financial economies of scale Technical economies of scale Risk bearing economies of scale External economies of scale Diseconomies of scale Bulk Buying Bulk selling Add Marketing economies of scale – costs of marketing can be spread across a larger output Network economies of scale – the cost reduction of participation in a widely used system eg websales, single currency or payment system makes things easier for all

How can dis-economies be avoided? Organisational structure PRP monitoring and appraisal Outsourcing

Crikey its time for an MCQ!

Answers Answer A technical and marketing economies – nothing to do with purchasing nor finance Answer D Maximise profit not customer satisfaction, econ of scale nor efficient allocation of resources – priorities lead to profit here Answer A – productivity in cap goods, not B resources would move along the line, not c PPf does not show demand, not d opp cost would increase if consumer goods were more efficiently made

Exam question Competition in grocery retail has meant prices in supermarkets have been squeezed to very low levels. Is it inevitable that a modern supermarket can only survive if it has a good range of economies of scale? 25mks Include: Key terms Logical sentences A graph linked to the explanation Some examples in context 2 sides of an argument Justified conclusion

Exam question Competition in grocery retail has meant prices in supermarkets have been squeezed to very low levels. Is it inevitable that a modern supermarket can only survive if it has a good range of economies of scale? 25mks Include: Key terms Logical sentences A graph linked to the explanation Some examples in context 2 sides of an argument Justified conclusion