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CAIE IGCSE Economics 3.4.3 Economies and Diseconomies of Scale Questions

Examine scale effects in CAIE IGCSE Economics by explaining why a growing firm or industry can lower or raise average costs and representing these changes on ATC diagrams.

Syllabus
2027–2029
Course
Economics 0455

Exam points

  • Define economies and diseconomies of scale through falling or rising long-run average costs as the scale of production changes.
  • Distinguish internal scale effects within a firm from external effects affecting an industry, using examples such as improved transport or a skilled local workforce.
  • Explain how bulk purchasing, specialist staff, technology and access to finance can reduce a growing firm's average costs, developing each link in context.
  • Explain how slow decisions, communication difficulties and weaker worker motivation can create internal diseconomies of scale.
  • Evaluate whether expansion always lowers average costs by balancing specific economies against management and coordination problems.
  • Draw a labelled ATC diagram with falling and rising sections to illustrate economies and diseconomies of scale.

CAIE IGCSE Economics 3.4.3 Economies and Diseconomies of Scale Questions question 1

[Maximum number: 6]

In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as the new firm is likely to benefit from greater internal economies of scale. A manager stated that a key aim is to make the firm's production more sustainable by using raw materials taken from renewable sources. In most countries, the cosmetics firm's products, including perfume, are taxed at a higher rate than food.

Analyse the internal economies of scale that a cosmetics firm could experience.

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