Assess whether firms in the electronics industry benefit from economies of scale

Edexcel A-Level Economics Paper 1 June 2024 Extract

Assess whether firms in the electronics industry benefit from economies of scale. (10 marks)

1. Firms in the electronics industry are likely to benefit from economies of scale as they are large.
2. Extract C mentions that 'large electronics firms benefit from economies of scale'.
3. As firms increase their output, they are able to reduce their long-run average costs.
4. The diagram shows this as the long-run average cost falls from c1 to c2 at the higher output q2.
5. When a firm is larger, they are able to bulk-buy materials, and this enables them to reduce their cost per unit.
6. Another example is that larger firms can hire specialist managers to oversee more staff at once, and this also enables them to reduce their cost per unit.

1. However, as firms become too large, diseconomies of scale might outweight their economies of scale.
2. For example, there might be communication problems.
3. As a firm becomes larger workers might feel alienated.
4. This reduces their motivation to work hard, and this reduces their productivity.
5. As a result, firms average costs might increase.
6. Extract B also mentions that firms are finding it difficult to find suitable staff suited to the industry.

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