Business – 9.1 Location and scale – Scale of operations | e-Consult
9.1 Location and scale – Scale of operations (1 questions)
Login to see all questions.
Click on a question to view the answer
Model Answer:
- Definition: Internal economies of scale are cost advantages that a firm experiences as it expands its own production, resulting from factors within the firm itself.
- Example 1 – Bulk Purchasing of Raw Materials: By buying larger quantities, the firm negotiates lower unit prices, spreading the purchase cost over more units and lowering the average cost per unit.
- Example 2 – Specialised Machinery: Investing in high‑capacity, specialised equipment increases productivity; the fixed cost of the machinery is spread over a larger output, reducing the average cost per unit.