Operational Strategies - Scale & Resource Mix Operational Strategies - Scale & Resource Mix How do...
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Transcript of Operational Strategies - Scale & Resource Mix Operational Strategies - Scale & Resource Mix How do...
Operational Strategies - Scale & Resource Mix
How do companies choose the right ‘scale’ of production?
Economies of scale
By the end of this lesson you should be able to…
Describe what is meant by economies of scale
Explain 3 different examples of economies of scale
Discuss why companies can also experience diseconomies of scale
How to do calculate an average?
1 352 503 254 05 356 547 80
Batting average
1 32 13 04 35 26 27 2Goals scored
1 25
2 15
3 20
4 22
5 20
6 15
7 20Cost of a haircut
in Dorking
If the next number is higher / lower what will
it do to the average?
1. Economies of scale
Arise when unit costs fall as output
increases
Economies of scale
By the end of this lesson you should be able to…
Describe what is meant by economies of scale
Explain 3 different examples of economies of scale
Discuss why companies can also experience diseconomies of scale
Unit costs formula - reminder
Average cost per unit is calculated using this formula:
Total production costs in period (£)
Total output in period (units)
Economies of scale illustratedAverageCost perUnit (£)
Quantity of output
CostCurve
AC1
AC2
Q1 Q2
Unit costs are falling as output increases from Q1 to Q2
= economies of scale
Unit costs start to rise as output rises above Q3
= diseconomies of scale
Q3
Diseconomies of Scale
LACCosts
Output
Economies of Scale Diseconomies of Scale
Minimum efficient scale
The level of output at which average
cost stops falling as output increases
Minimum efficient scale
The output at which average unit costs of
production are at their minimum
Internal v External Economies of Scale
Arise from the increased output of the business itself
Internal
Occur within an industry: all competitors
benefit
External
Examples of Internal economies of scale
Buying economies
Buying in greater quantities usually results in a lower price (bulk-buying)
Technical Use of specialist equipment or processes to boost productivity
Marketing Spreading a fixed marketing spend over a larger range of products, markets and customers
Network Adding extra customers or users to a network that is already established (e.g. mobile phones)
Financial Larger firms benefit from access to more and cheaper finance
External economies of scale Arise from the industry as a whole – i.e. all
competitors benefit
Often associated with particular geographic areas E.g. Creative & media in London
Examples Having many specialist suppliers close by Access to research and development facilities Pool of skilled labour to choose from
Diseconomies of scale
Factors which cause the average production cost per unit of a
business to increase above the efficient level
Economies of scale
For your exam the board want you to focus on
It is still worth knowing about others to build out your answers and display your wider knowledge!
Purchasing SpecialisationTechnical
Examples of diseconomies of scale
Poor communication More difficult to control a larger, more
complex business More frequent machinery & employee
breakdown if output & capacity utilisation is too high
Loss of management focus
What about this for scale!
Oasis of the seas
What advantages does the stunning scale of the ship offer customers and the operator Royal Caribbean?
Are there potential diseconomies of scale?
Quick revision test – 10 mins
It’s the last 10 mins of the exam There are two questions left One of them is on economies of scale You have the potential to shift up a grade by
just picking up 10 marks