- Internal economies of scale occur when a business grows and becomes more efficient, reducing
average costs. These efficiencies arise from the company's own operations. Types:
Technical Economies: Investment in advanced machinery to boost efficiency. Purchasing Economies:
Bigger firms can buy raw materials in bulk and get better deals. Managerial Economies: Hiring
specialised managers to improve operations. Marketing Economies: Bigger companies can spread
advertising costs across a greater output, reducing the cost per unit of reaching customers.
- External economies of scale occur when businesses reduce costs due to factors outside the
company, like industry or regional growth. Key Types: Industry Growth: Larger industries lead to
better technology and lower costs. Labour Pool: More specialised workers reduce training and hiring
costs. Supplier Specialisation: As industries grow, suppliers get better and cheaper.
Diseconomies of Scale:
- Diseconomies of scale occur when a company grows too large, causing average costs per unit to rise
due to inefficiencies and complexities in management.
- Communication Breakdown: As firms expand, coordinating between departments becomes harder,
leading to delays and miscommunication. Management Complexity: Larger businesses require more
managerial layers, slowing down decision-making processes. Employee Morale and Productivity:
With more employees, maintaining company culture becomes challenging, potentially lowering morale
and productivity. Resource Overload: Overuse of systems or resources, like production equipment or IT
infrastructure, leads to inefficiencies and bottlenecks.
Advantages of Job production: customisation and quality, customer satisfaction, production Is easy to
organize. Disadvantages: high labour costs, limited output, inconsistent product, higher capital
investment.
Advantages of batch production: reduced waste, flexibility, unit costs are lower. Disadvantages:
inventory costs, risk of waste, storage issues. .
Advantages of flow production: high efficiency, Low Unit Costs, Minimal Waste. Disadvantages:
Dependence on Equipment, risk of overproduction.
Productivity: is a measure used for evaluating how effectively goods or services are produced.
Increasing productivity in a business involves producing more items or services.
Factors influencing productivity: motivation of workers, education and training and capital
productivity.
How to improve efficiency: outsourcing, relocating, new technology, continuous improvement (kaizen)
and JIT production.
Labour Intensive Production: A production process that depends more on human labor than machinery and technology.
Characteristics:- High labor costs compared to capital costs. - Suitable for industries requiring manual skills. -Common in
developing countries with cheaper labor.- Flexible and adaptable to production changes.
Capital Intensive Production: A production process that depends more on machinery and technology than human labor.
Characteristics:• High capital costs compared to labor costs.• Requires significant investment in machinery and technology.•
Increases efficiency and reduces long-term costs.• Ideal for industries with standardized production processes.
Labour productivity: measures the efficiency of labor in producing goods or services, calculated as output per worker or per hour
worked. Formula: lanour productivity= (total output divided by total labour input)
Key Factors Influencing Labour Productivity: • Skills and training – Well-trained workers perform tasks more efficiently. •
Technology and equipment – Advanced tools improve speed and accuracy. • Work environment and management – Good leadership
and conditions enhance performance. • Motivation and incentives – Higher wages and benefits boost worker effort.
Capital Productivity measures how efficiently capital (machinery and technology) is used to produce goods. It indicates how much
output is made per unit of capital input. Formula: capital productivity= (total output divided by total capital input)
Key Factors Influencing Capital Productivity: • Technology and innovation – Modern equipment increases efficiency. •
Maintenance and utilization – Well-maintained machines reduce downtime. • Worker skills – Skilled operators maximize capital
efficiency.• Production techniques – Streamlined processes improve capital use.
Labor Productivity measures how efficiently workers produce goods and services. Improving it means increasing output per
worker or per hour worked.
average costs. These efficiencies arise from the company's own operations. Types:
Technical Economies: Investment in advanced machinery to boost efficiency. Purchasing Economies:
Bigger firms can buy raw materials in bulk and get better deals. Managerial Economies: Hiring
specialised managers to improve operations. Marketing Economies: Bigger companies can spread
advertising costs across a greater output, reducing the cost per unit of reaching customers.
- External economies of scale occur when businesses reduce costs due to factors outside the
company, like industry or regional growth. Key Types: Industry Growth: Larger industries lead to
better technology and lower costs. Labour Pool: More specialised workers reduce training and hiring
costs. Supplier Specialisation: As industries grow, suppliers get better and cheaper.
Diseconomies of Scale:
- Diseconomies of scale occur when a company grows too large, causing average costs per unit to rise
due to inefficiencies and complexities in management.
- Communication Breakdown: As firms expand, coordinating between departments becomes harder,
leading to delays and miscommunication. Management Complexity: Larger businesses require more
managerial layers, slowing down decision-making processes. Employee Morale and Productivity:
With more employees, maintaining company culture becomes challenging, potentially lowering morale
and productivity. Resource Overload: Overuse of systems or resources, like production equipment or IT
infrastructure, leads to inefficiencies and bottlenecks.
Advantages of Job production: customisation and quality, customer satisfaction, production Is easy to
organize. Disadvantages: high labour costs, limited output, inconsistent product, higher capital
investment.
Advantages of batch production: reduced waste, flexibility, unit costs are lower. Disadvantages:
inventory costs, risk of waste, storage issues. .
Advantages of flow production: high efficiency, Low Unit Costs, Minimal Waste. Disadvantages:
Dependence on Equipment, risk of overproduction.
Productivity: is a measure used for evaluating how effectively goods or services are produced.
Increasing productivity in a business involves producing more items or services.
Factors influencing productivity: motivation of workers, education and training and capital
productivity.
How to improve efficiency: outsourcing, relocating, new technology, continuous improvement (kaizen)
and JIT production.
Labour Intensive Production: A production process that depends more on human labor than machinery and technology.
Characteristics:- High labor costs compared to capital costs. - Suitable for industries requiring manual skills. -Common in
developing countries with cheaper labor.- Flexible and adaptable to production changes.
Capital Intensive Production: A production process that depends more on machinery and technology than human labor.
Characteristics:• High capital costs compared to labor costs.• Requires significant investment in machinery and technology.•
Increases efficiency and reduces long-term costs.• Ideal for industries with standardized production processes.
Labour productivity: measures the efficiency of labor in producing goods or services, calculated as output per worker or per hour
worked. Formula: lanour productivity= (total output divided by total labour input)
Key Factors Influencing Labour Productivity: • Skills and training – Well-trained workers perform tasks more efficiently. •
Technology and equipment – Advanced tools improve speed and accuracy. • Work environment and management – Good leadership
and conditions enhance performance. • Motivation and incentives – Higher wages and benefits boost worker effort.
Capital Productivity measures how efficiently capital (machinery and technology) is used to produce goods. It indicates how much
output is made per unit of capital input. Formula: capital productivity= (total output divided by total capital input)
Key Factors Influencing Capital Productivity: • Technology and innovation – Modern equipment increases efficiency. •
Maintenance and utilization – Well-maintained machines reduce downtime. • Worker skills – Skilled operators maximize capital
efficiency.• Production techniques – Streamlined processes improve capital use.
Labor Productivity measures how efficiently workers produce goods and services. Improving it means increasing output per
worker or per hour worked.
