ILO:

a) Types of economies and diseconomies of scale
b) Minimum efficient scale
c) Distinction between internal and external economies of scale

Economies of scale:

Explain the following use an example:

> Financial
> Technical
> Managerial
> Marketing
> Purchasing
> Risk-bearing

​These are all a long run concept. What does that mean?
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Internal Economies of Scale

Diseconomies of scale

Why as a firm increases in size may its LRAC increase?
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​ Minimum efficient scale

In industrial organization, the minimum efficient scale (MES) of production is the lowest point where the plant (or firm) can produce such that its long run average costs are minimized.

Where the level of output to achieve this is small then the industry is more likely to be competitive regarding the number of firms, as the low average cost does not act as a barrier to entry if others can achieve it easily.

Where MES is achieved with a large output level, the industry is much more likely to be a natural monopoly. As the firm who has achieved the output to obtain their position will be able to maintain it with the lower AC advantage over possible entrants i.e. energy or telecommunication companies.
See theory sheet on natural monopoly
Access the importance of MES in explaining Tesco's power in the super market industry? (12 marks)

These 10 companies make a lot of the food we buy.
A lot happens in a day at Tesco
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Example answer

Minimum efficient scale
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MES dynamic changes
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External economies of scale

External economies of scale imply that as the size of an industry grows larger or more clustered, the average costs of doing business within the industry. These are generally referred to as positive externalities.
External economies of scale
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Revision

Y2 6) Economies and Diseconomies of Scale
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