Economies of scale
What Economies of scale means in Economics A-Level, as defined for AQA.
Definitions of Economies of scale
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Reference: AQA
Internal ones are fully exploited at the minimum efficient scale, the lowest output level at which a firm reaches the lowest point on its long-run average cost curve.
Cause the LRAC curve to slope downwards as a firm initially expands its scale, such as through bulk-buying materials or employing specialist managers.
Falling long-run average costs as output increases, which firms can exploit by accessing larger global markets and increasing their output.
Can be achieved by monopolies on a massive scale, potentially lowering prices below what a competitive market could offer.
A situation where increasing returns to scale mean output grows faster than inputs, causing average costs to fall.
Together with diseconomies of scale, these cause the U-shape of the long-run average cost curve.
Topics that use Economies of scale
- Costs of production (AQA A-Level)
- Economies and diseconomies of scale (AQA A-Level)
- Monopoly and monopoly power (AQA A-Level)
- The law of diminishing returns and returns to scale (AQA A-Level)
- Trade (AQA A-Level)
Related terms
- Diminishing marginal returns
- Factors of production
- Short run
- Alienation
- Allocative inefficiency
- Capacity constraints
- Comparative advantage
- Cost curve geometry
Using Economies of scale in the exam
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