Question

1. Define economies of scale. 2. Define economies of scope. 3. Define economies of sequence. 4. What would you want to know before you commit to a make or buy decision?

Answer 1

Answer 1 :Economies of scale

The advantages a company gets when it increases it's production is known as economies of scale. When a company increases it's production , it lowers it's cost as the cost is divided into more units . Economies of scale are more in case of a larger firm and comparative low in smaller firms. It can be of two types

Internal economies of scale

External economies of scale.

When economies of scale occurs within the enterprise it is called internal economies of scale . For example, we introduce a new technology in the firm which reduces the electricity cost of production in comparison to previous one. Here, Economies of scale are occurring internally as we are reducing cost by our internal affairs.

When economies of scale occurs outside the enterprise that is known as external economies of scale. For example, our firm is located in the main market area from where we can easily reach to our buyers, suppliers etc. Here, due to our firms location , we cut off the cost of transportation of goods to buyers and getting goods from suppliers. Thus, economies of scale are occurring externally.