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Business Studies
Revision
Pack 21 - The Scale of Production
ECONOMIES OF SCALE
The fall in average costs of production (or unit cost of production) as the scale of production increases
...

Purchasing economies

When large businesses often receive a discount because
they’re buying in bulk
...


Financial economies

Larger firms find it easier to find potential financial
sources
...


Marketing economies

Spreading the cost of promotion over a larger level of
output
...


External Economies of Scale
These are the benefits to the firm that arise as a result of the growth of the industry itself and/or as a result of the improvements to the local area
...
Training costs may be reduced and local
colleges are likely to provide relevant courses
...
Therefore a wide range of
commercial and support services can be obtained more
easily, e
...
component supplies, distribution services,
specialist banking facilties
...


Disintergration

This occurs when production is broken up so that more
specialisation can take place
...
This, for example, speeds up transportation and
so reduces average costs of production
...

DISECONOMIES OF SCALE
Diseconomies occurs when the average costs of production increase as the scale of production increases
...

Poor Communication

As a firm grows communication becomes
more difficult and messages may be
distorted in taller hierarchies or wider
spans of control > inefficiency and
misunderstanding rising average costs
...
g
...


Ways to minimise this Use technology
Regular meetings
New structure

Poor Motivation

As more workers join a growing workforce
> may feel more insignificant or alienated
> More difficult to satisfy the needs of all
workers > the firm may have to employ
more staff to cover for staff they expect to
be absent on any given day > output per
worker will fall > labour costs per unit will
rise
...
g
...


External Diseconomies of Scale
These may occur from overcrowding in industrial areas
Traffic congestion

More likely slowing deliveries

Fierce competition

More difficult, more expensive to recruit best workers
...

Access to markets

-Consumers
-Retail tertiary

Competition

-Near or far
-Attracts more customers
-Due to availability of labour
-Niche markets
-Not as competitive

Availability of labour

-Large numbers
-Near large supply
-Specialist skills
-Silicon valley

Supplies location

-Near - JIT
-Perishable goods
-Large, bulky

Infrastructure

-Support networks & facilities
-e
...
road, rail, water, sewages

Government/Environmental influence

-Grants available for businesses to locate in areas of high
unemployment

Cost of land

-Initial purchase cost (high in town centres)
-Rental costs
-Developed?
-Greenfield vs Brownfield

Image

-e
...
g
...
g
...
g oil, paper factor

Multi-national firms
Advantages

Disadvatages

A bigger market - potentially more customers

Exchange rates - Operating in another country exposes a
business to the effects of fluctuating exchange rates

Spreads a company’s risk - e
...
if one economy goes into
recession

Trade barriers - e
...
quotas, tariffs on importing goods and
government subsidies for domestic industry

Economies of scale - Mainly for large businesses e
...
oil and car
manufacturing
...
e there are no dramatic or sudden changes in
the political landscape which impact on businesses
...
Mcdonalds & Coca Cola protected from competition through patents
Transfer pricing - an attempt to avoid relatively high tax rates
through the prices which one subsidiary chargers for another for
components and finished products
...

The Demand Curve

Any changes in price are reflected by movements along the curve
...

• A shift to the right represents an increase in demand - more will be demanded at any given price
• A shift to the left represents a decrease in demand - less will be demanded at any given price
Factors that affect demand:
• Income
• The price of other goods
-‘Compliments’ - goods that go together e
...
a car & petrol for example
-‘Substitutes’ - cars & public transport for example
• Changes in tastes & fashion
• Changes in population
• Advertising
• Legislation e
...
cigarette ban
• External influences

Equilibrium Price
The equilibrium price is found where supply and demand are equal
...


Business Studies
Revision
Pack 23 - Supply and Demand
Supply
Supply is the quantity of a product that suppliers are prepared to supply to the market at any given price over a given
period of time
...

Factors affecting the Supply Curve
Factors other than the change in price cause the supply curve to shift to the right or left
...

A shift to the left represents a decrease in supply - less will be supplied at ay given price
...
This means that at each and every price, less
is supplied to the market
...
This means that at each and every price, more is supplied to the market
...

Market Structures
•
•
•
•

Monopoly
Oligopoly
Monopolistic Competition
Perfect Competition (an unrealistic form of market structure - but used to compare/contrast features of other market
structure)

Monopoly
• The sole supplier to a market i
...
This is a Pure Monopoly
...
This is known as Monopoly Power and
are often referred to as Price Makers
...
This is a Legal Monopoly
...

-Monopolies are protected by Barriers to Entry
Barriers to entry include:
• Legal Barriers
• High set-up costs
• Economies of Scale that existing firms have benefitted from
• Predatory pricing - setting prices extremely low to make competing hard
• Marketing/advertising strategies
• Natural Resource barriers (e
...
united utilities)
Advantages

Disadvantages

Economies of Scale

Abuse of monopoly power

Lower prices

Exploitation of consumers

Increased Research and Development

Higher prices

More invention and innovation

Abnormal profit

Higher quality products

Oligopoly
• The dominant form of industry in the UK
• When there are many firms in the market but only a few firms dominate the market
• It is very competitive

e
...
Supermarket industry, Fast food industry, Phone industry
-A high degree of concentration means that a few firms completely dominate the market
-A low degree of concentration means that the market is spread between a number of companies
...
In some cases they constrain a firms decisions and may prevent its growth and development
...

Exogenous Shock example

Positive effect

Negative effect

Ash cloud

Hotels, shops, boats, trains

Airlines

Haiti Earthquake

Imports of supplies

Farming (2/3 employment)

Foot & Mouth

Media, chicken

Tourism, beef

9/11

Media, construction, gas

Airlines, business in New York

What influences business activity?
• Tax/Government
• Economic Climate > recession > unemployment
• Population Trends
• World Affairs
• Environmental Factors > Corporate Social Responsibility (CSR)
-Firms have sought new ways if production, packaging and distribution in order to reduce costs, protect the environment
& enhance their reputation
• Legislation/Regulation e
...
car seats
• Pressure Groups
- An organisation of individuals who try to influence and change behaviour e
...
firms using animal testing
• Competition
• Consumers tastes
- Firms need to keep close to their market and consumers to ensure that they’re up to date & able to respond appropriately to any changes in demand
...


Business Studies
Revision
Pack 25 - Change
Businesses today have to operate in rapidly changing markets & conditions
...

What causes change?
• Development in technology
• Market changes - e
...
competition/globalisation
• Consumer tastes
• Legislation
• Changes in the workforce
• The economic climate
Firms have to be aware of the impact that change has on their Stakeholders
A stakeholder is an individual or organisation that has an effect upon or is affected by a business
Stakeholders can be Internal or External
Internal

External

Owners or shareholders

Customers

Employees

Suppliers

Managers

The government

Directors

Local Community
The environment

Business Studies
Revision
Pack 26 - Technology
• Technological developments refer to improvements in a product or a process due to improvements in science and engineering
...

than they could manually
-e
...
g using internet
marketing, web based
customer relationships

Robots can:
-Improve quality
-Lower costs
-Make production more
flexible

Automated stock control is
common for retailers

CAM(Computer Aided
Manufacture)
-Firms can manufacture a
product using
programmable machinery
e
...
robots

Communication channels &
contact easier between
managers & staff,
employees, suppliers etc
-Affordable

Employees can concentrate
on other tasks

Costs involved in purchase
and installation
-Unique, costly, time
consuming

CAD(Computer Aided
Design)
-Firms can design a new
product and test it on
screen - saves building a
prototype which is time
consuming and expensive

Types of electronic
communications:
-Email, text, mobile phones,
skype, video conferencing

Robots useful when:
-High level of accuracy &
precision is needed
-Job has a high level of
repeatability (flow
production)

Type of task able to
complete is quite limited

Online buying (for suppliers
& customers)

Benefits of Technology
Improved
communications

Improved transformation
process

Improved productivity

Improved effectiveness &
competitiveness

Improved flow of
communications/information
between:
-Customers
-Business
-Suppliers

Makes process more
flexible and cheaper
because of fewer defects,
improved accuracy &
consistency

Employees can do their
jobs better & quicker

-Lower costs (in the long
term)

Faster response times

Reduces wastage
(materials & time)

Efficient workforce &
increased productivity

-Higher quality (less
mistakes)

Fewer mistakes

Improved quality & lower
costs

Higher capacity & revenue
potential

-Better service

Business Studies
Revision
Pack 26 - Technology cont
Factors to consider for the use of technology:
• Not every firm needs or can afford the latest technology - new/small firms
• What technology would most add value and cover the costs of investment:
-What is essential in the short term
-What is desirable in the long term
• How to introduce technology to maximise its effectiveness
-What training needs to be done
-How might it link to other systems to be more useful
Reviews need to be frequent because with the rate of change in technology equipment and systems can become out of
date quite rapidly

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