
What is economies of scale and diseconomies of scale
Updated: Feb 22
Economies of scale happens when a business grow large enough to enable them to lower average cost, while diseconomies of scale happens when a business grows too large, resulting in inefficiency.
There are five (5) types of economies of scale are;
Purchasing economies
Marketing economies
Risk bearing economies
Technical economies
Financial economies
Two (2) types of diseconomies of scale;
Management diseconomies
Labour diseconomies
Purchasing economies
Purchasing economies happens when a business is able to take advantage of a lower price by negotiating with the suppliers, because they purchase in large amounts or bulk.
Marketing economies
Marketing economies happens when a firm is able to promote or distribute multiple products in large amounts at a time. This saves the firm on promotion cost as a single advertisement campaign could include all or multiple products.
Risk bearing economies
With multiple different products, a business could reduce risk of loss from falling demand of one of its product.
Technical economies<