Topic Summaries

Economies and diseconomies of scale

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GCSE > Business > AQA > GCSE Business Topic Summaries > Operations > Economies and diseconomies of scale
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Formula sheet

As businesses grow, they often benefit from economies of scale which are cost advantages gained when output increases. However, if they grow too large, they may face diseconomies of scale, which increase per-unit costs due to inefficiencies.

Economies of scale (lower unit costs with growth)
Type Description Example
Purchasing Buying in bulk reduces unit costs Supermarkets securing discounts from suppliers
Marketing Spread advertising costs over more units A national TV ad reaching millions of customers
Financial Larger firms often access cheaper credit Banks offering lower interest to established firms
Managerial Specialised managers boost productivity A finance director managing budgets more efficiently
Technical Investment in machinery reduces per-unit costs Automated bottling lines at Coca-Cola plants

Diseconomies of scale (rising unit costs from overgrowth)
Issue Description
Communication problems Large organisations may suffer from unclear or delayed communication across departments.
Motivation and loyalty Employees may feel disconnected or undervalued in large, impersonal structures.
Coordination inefficiencies Managing large operations can become slow and bureaucratic, reducing agility and increasing costs.

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