1. Economies and Diseconomies of Scale

2. Economies of Scale As businesses grow – costs of production decrease
Bigger businesses gain some advantages over smaller businesses through Economies of Scale
There are two types of Economies of Scale:
Internal Economies
External Economies

3. Internal and External Economies
Internal Economies
Those Specifically related to the business itself eg:-
Production
Purchasing
Marketing
Financial
Managerial
External Economies
Benefits the whole industry and not specific firms
Skilled labour in the area
Better road and rail networks
Improves the reputation of the area
Attracts other businesses

4. Example: Daimler Chrysler own the following brands:
Purchasing economies of scale can be achieved by bulk buying parts that can be used across all brands such as Wiper Blades

5. Diseconomies of Scale
There are limits to the amount a business can grow
If businesses grow to large they start to suffer from Diseconomies of Scale
These diseconomies happen because the larger the business the more difficult it becomes to manage

6. Some common diseconomies of scale:
Decision making
Managerial problems
Communication problems
Co-ordination/control problems
Staffing problems

7. Task:
Peter, a sole trader who owns a grocery shop, is in trouble because of a supermarket which has just opened. The supermarket benefits from economies of scale. Select and explain (in detail) how four of these economies will benefit the supermarket.
Explain how Diseconomies of Scale could effect the Virgin Group?