GCSE Business Studies/Economies and Diseconomies of Scale

Business Size
There are a number of indicators used to determine whether a business is large or small. Some of these are:
 * Number of employees: How many people are employed by the business?
 * Turnover: What is the sales revenue of the business?
 * Value of its assets: How much are all the possessions of the company worth?
 * Physical size of the business: How many shops or warehouses does it own? How much land does it occupy?
 * number of employees

Economies of Scale
Large businesses have some advantages over smaller businesses. These are known as economies of scale, and can be divided into two categories:
 * Internal economies of scale: Are related only to the business itself.
 * External economies of scale: Benefit the whole industry or community.

Production and Technical Economies
These economies relate to the firm's production process. Some examples of these are:
 * Mass production means lower unit costs.
 * Able to transport materials in bulk, saving on transport costs.
 * Can use computers and technology that may be too expensive for a small firm.

Purchasing and Marketing Economies
These economies relate to the firm's purchasing and marketing. Some examples of these are:
 * Bulk buying means raw materials are cheaper.
 * Advertising costs can be spread.

Financial Economies
These economies relate to the firm's finance. Some examples of these are:
 * Easier to raise capital - better lending terms and lower interest rates.
 * Risk is spread over multiple products.

External Economies
External economies are those that benefit the whole industry or community. Some of these are:
 * Better road and rail networks improve the area the business is in.
 * Skilled labour in the area increases.
 * Other businesses, such as suppliers, are attracted to the area.
 * This provides a mutual advantages to businesses in the area.