Theory question 103
Theory of Production(a) What is economies of scale?
(b) Outline three internal economies of scale a firm can enjoy.
(c) State three factors that can influence where a firm is sited.
Show the model answer
Model answer
(a) Economies of scale are the advantages (lower average cost) a firm enjoys as its scale of production increases.
(b) Any three: technical; managerial; financial; marketing (bulk buying and selling); risk-bearing; research; welfare economies.
(c) Any three: nearness to raw materials; nearness to market; availability of labour; power and water supply; transport and communication; government policy; availability of land; security; external economies (existing industries).
Explanation
Internal economies come from the firm's own growth.