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Costs of Production
Leaving Cert business
| Term | Definition |
|---|---|
| Scale of Production – Economies and Diseconomies of Scale=The size of an individual firm has an important influence on the operating efficiency of that firm | |
| Scale of Production – Economies and Diseconomies of Scale=The economies and diseconomies experienced by an individual firm as it grows are called the internal economies and diseconomies of scale | |
| Internal Economies of Scale (advantages of large scale production within the firm)=1. Specialisation of labour: as a firm grows in size, each worker will be able to specialise in one particular task instead of dividing his time between a number of differe | |
| Internal Economies of Scale (advantages of large scale production within the firm)=2. Use of the machinery: with large scale production and increased specialisation of labour it is possible for a firm to use machinery more economically | |
| Internal Economies of Scale (advantages of large scale production within the firm)=3. Marketing economies: as a firm grows it will purchase and sell stock in larger quantities | |
| Internal Economies of Scale (advantages of large scale production within the firm)=4. Continuity of the production process: a large firm will find it easier to arrange production into one continuous process from the initial stages to the final output | |
| Internal Economies of Scale (advantages of large scale production within the firm)=5. Large offices and factories cost less per cubic foot to erect than smaller ones | |
| Internal Economies of Scale (advantages of large scale production within the firm)=6. The bulk purchase: of building materials may result in substantial discounts | |
| Internal Diseconomies of scale (disadvantages)=1. Decision-making: as a firm grows in size, the lines of authority and chains of responsibility become less clearly defined. As a result decision-making will be slower and less effective. | |
| Internal Diseconomies of scale (disadvantages)=2. Staff morale: as a firm grows and the workers within it become more specialised, their morale suffers due to the monotonous and repetitive nature of the specialised tasks they are performing. This loss of | |
| Internal Diseconomies of scale (disadvantages)=3. Communication problems: as a firm grows in size, communication becomes more difficult due to greater numbers of employees and more complex lines of authority | |
| Internal Diseconomies of scale (disadvantages)=4. Administration overheads: as a firm expands, its administration costs will usually increase at a faster rate than its output. | |
| External Economies of scale. (advantages of large scale production to the market)=1. Disintegration: when an industry becomes large enough, one process may be isolated and performed on a large scale by a specialist firm | |
| External Economies of scale. (advantages of large scale production to the market)=2. Subsidary trades: as an industry grows, subsidary trades (spin-off industries) will develop locally to service the expanding industry | |
| External Economies of scale. (advantages of large scale production to the market)=3. Specialised services: when an industry becomes very large, research and development agencies may be set up to provide facilities for the individual firms within the indus | |
| External diseconomies of scale (disadvantages)=1. Shortages of factors of production: (a) As an industry expands, scarcities of factors of production, particularly skilled labour, leads to increased labour costs or the employment of less suitable workers | |
| External diseconomies of scale (disadvantages)=2. Raw material shortage: pressure will be put on the supply of raw materials with increased demand and a possible shortage may arise | |
| External diseconomies of scale (disadvantages)=3. Infrastructural problems: as an industry expands, its demand for infrastructure (e.g. public transport, telecommunications etc) may not easily be met. This leads to increased costs. | |
| Small-scale production=We have seen that there are considerable advantages to operating a business on a large scale |
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athlonebusinessstudies
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