Economies of Scale | A-Level Economics Notes

These revision notes cover everything you need to know about Economies of Scale for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What are economies of scale?

Economies of scale occur when firms are able to reduce their long-run average costs as they increase output.

What are six types of economies of scale?

Really fun mums try making pies.

• Risk-bearing: large firms can spread risk over a wider range of products, so there is less risk of an innovation failing.
• Financial: large firms can reduce their long-run average costs by accessing cheaper loans/ lower interest rates.
• Marketing: large firms can reduce their long-run average costs as one advertising campaign covers a wider range of product and stores.
• Technical: large firms can reduce their long-run average costs as one machine will be used to produce more output.
• Managerial: large firms can reduce their long-run average costs as one manager can oversee more work and output so the average cost of employing them is lower
• Purchasing: large firms can reduce their long-run average costs by bulk buying.

What are diseconomies of scale?

Diseconomies of scale occur when a firm's long-run average costs rise as output increases.

What are three types of diseconomies of scale?

The three Cs.

• Communication: large firms could have higher average costs as workers are less motivated so productivity could be lower
• Control: large firms may have higher average costs as it is harder for managers to measure productivity in different teams.
• Coordination: large firms find it harder to co-ordinate staff as there are multiple large teams in the same company.

What are external economies of scale?

External economies of scale occur when the long-run average costs fall for all firms in an industry.

What are two types of external economies of scale?

All firms in an industry can reduce their long-run average costs if they can access

• better infrastructure e.g. transport links
• high skilled labour

Summary questions

1. What are economies of scale?
2. What are six types of economies of scale?
3. What are diseconomies of scale?
4. What are three types of diseconomies of scale?
5. What are external economies of scale?
6. What are two types of economies of scale?

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