Examples of internal Economies of scale
- Technical internal E.O.S. These arise from the use of better methods (techniques) of production which results into lower average costs of production For example, a large firm can manage to purchase specialized machines like tractors which increase output at reduced average costs.
- Managerial (Administrative) internal E.O.S. Large firms can acquire highly qualified personal in various fields for example, accountants, marketing managers, production managers, etc. These can help to do the work efficiently which lead to increased output at reduced average cost.
- Marketing internal E.O.S. These are advantages enjoyed by the firm through buying and selling in large quantities e.g. when raw materials are purchased in bulk, the cost per unit are reduced also when goods are sold in bulk more revenue is realized by the firm hence reduced average cost.
- Financial internal E.O.S. A large firm is able to secure a loan from financial institutions like commercial banks. This is because it has enough collateral securities and it is highly trusted by financial institutes.
- Transport internal E.O.S. These result from a large firm transporting raw materials or commodities in bulk (large quantities) which reduces the cost per unit of transportation. For example the unit cost of transporting 600tones per trip is different from the unit cost of transporting 100 tones per the same trip.
- Storage internal E.O.S. A large firm enjoys by storing raw materials or commodities in bulk as compared to small firms, That is, large firms incur lower: costs per unit as a result of storing in large quantities.
- Research internal E.O.S. Large firms are able to carry out research as a way of improving on the quality and quantity of their output unlike small firms.
- Risks bearing internal E.O.S. Large firms are able to diversify their output by producing a wider range of products and selling in different markets. In addition they are also able to insure their business activities against certain risks so to avoid losses.
- Social (welfare) internal E.O.S. Large firms can afford to provide their workers with facilities like medical, transport, accommodation, higher wages, etc. all of which motivate their workers and make them feel contented. This increases efficiency hence reduced average costs.
CATEGORIES Economics
TAGS Dr. Bbosa Science
