What is meant by the term "economies of scale" and what types of EOS exist?

Economies of Scale are defined as the reductions in the cost per unit produced that are a result from the increase in the overall scale of production. In other words, as the business produces more and more units, the cost of each individual unit decreases. There are a several types of economies of scale, including the following: a) EOS due to bulk-buying:When buying supplies in bulk, usually businesses are able to strike favourable deals and discounts with suppliers. b) EOS due to specialisation of the workforce: Specialisation of the workforce allows businesses to be more productive and produce more output in the same time, by splitting complicated processes into individual tasks. c) Marketing economies of scale: The marketing and advertising budget of a company which produces in a large scale is spread out (as marketing costs are usually fixed), making the marketing costs per unit lower. d) Technical economies of scale:Those result from bigger companies being able to acquire expensive technologically-advanced machinery and technology. e) Financial economies of scale: Larger businesses usually have better and more favourable access to sources of finance, as they are regarded as more "credit-worthy" by financial institutions. Additionally, large limited companies can also raise extra capital more easily by issuing shares. f) Managerial economies of scale: These result from division of labour. When a business is divided, for example, by several different functions, and appropriate managers are appointed, it helps with efficient supervision and allocation of responsibilities.

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Answered by Antigoni K. Business Studies tutor

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