Advantages And Disadvantages of Scale of Production - SS1 Economics Lesson Note
Advantages of Scale of Production:
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Economies of scale - As a business expands its scale of production, it can benefit from economies of scale, which means that the cost per unit of production decreases as production volume increases.
Higher efficiency - With a larger scale of production, businesses can benefit from more efficient production processes, reducing production time and costs.
Greater market power - Businesses with a larger scale of production may have greater market power, which allows them to negotiate better terms with suppliers, and lower prices for customers.
Better access to finance - Larger businesses have easier access to finance than smaller businesses, as they can use their size to attract investment and secure better financing terms.
Innovation and technological advancement - Large businesses can invest more in research and development, innovation, and technology, allowing them to stay ahead of the competition.
Disadvantages of Scale of Production:
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Lack of flexibility - As businesses grow, they become less flexible and may struggle to adapt to changes in the market or to customer needs.
High fixed costs - As businesses expand their scale of production, they often need to invest in expensive machinery and infrastructure, which can be difficult to recover if demand falls.
Diseconomies of scale - Beyond a certain point, a larger scale of production may lead to diseconomies of scale, where the cost per unit of production increases.
Communication problems - As businesses expand, communication between employees and managers can become more challenging, leading to inefficiencies.
Bureaucracy and slow decision-making - Large businesses may have more bureaucracy and slower decision-making processes, which can lead to delays in responding to changes in the market.