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.
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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
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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
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Collusive Oligopoly | A-Level Economics Model Paragraph (AQA, Edexcel, OCR)
An oligopoly market has high barriers to entry, and a few firms dominate the market. If there are only two or three firms with a similar market share, they are more likely to