When firms become larger and larger, they are impacted by both economies of scale and diseconomies of scale at the same time. After a point, diseconomies of scale will outweigh economies of scale. This is when long run average cost increases due to a firm having an increase in output. As a firm like Starbucks is very large, staff may have less motivation to perfect their skills and perfect their customer service compared to a member of staff at a local cafe, therefore they may be less productive and produce/ work towards less output. Therefore, average cost of hiring staff is higher for a bigger firm. Also, if something is wrong in a large firm, such as a random light bulb, or an unproductive member of staff, it will take far longer to identify and solve the problem compared to this same issue in a small firm. These are known as communication and co-ordination diseconomies of scale.
1 min read
Progressive Tax and Benefits | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
One way of measuring inequality is the Gini coefficient, which compares the area between the Lorenz curve and the line of perfect equality to the whole triangle beneath that line:
G = A / (A
1 min read
External Economies of Scale | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
External economies of scale occur when all firms in an industry are able to benefit from lower long-run average costs.
For example, if the government announced a scheme which encouraged more people to
1 min read
Internal Economies of Scale | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
Large firms are able to benefit from economies of scale. This is when long-run average costs fall as output increases. Risk-bearing, financial, marketing, technical, managerial, and purchasing are the main types of economies