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Business Studies IGCSEPDF 142
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4.5 Economies and Diseconomies of Scale
Economies of Scale (EOS):
Whenoutputincreases→averagecost per unit decreases.
Types:
1.Purchasing economies – bulk buying discounts.
2.Technical economies – using advanced machinery.
3.Financial economies – easier and cheaper loans.
4.Managerial economies – hiring specialist managers.
5.Marketing economies – advertising cost spread over more units.
Diseconomies of Scale:
Whenafirm growstoolarge →average cost increases.
Causes:
● Poor communication.
● Lack of motivation.
● Coordination problems.
4.6 Break-even Analysis
Key Terms:
● Fixedcosts (FC): Don’t change with output (e.g., rent).
● Variable costs (VC): Change with output (e.g., raw materials).
● Total cost (TC) = FC + VC
● Revenue = Selling price × Quantity sold
Break-even Point:
Where Total Revenue = Total Cost.