CAIE IGCSE Economics 3.4.3 Economies and Diseconomies of Scale Questions
Practise Cambridge IGCSE Economics by explaining how firm growth and economies of scale affect average costs and competitiveness.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- Define economies of scale and distinguish internal from external economies.
- Explain how growth in firm size can reduce average cost of production.
- Analyse internal economies of scale and their effects on competitiveness.
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.
Analyse the internal economies of scale that a cosmetics firm could experience.
Coherent analysis which might include the following.
- Buying / purchasing economies ( 1 ) buy ingredients in bulk at a discount (1).
- Labour economies (1) workers specialising e.g. designing the packaging (1).
- Managerial economies (1) e.g. specialist human resource manager (1).
- Technical economies (1) advanced technology could be used to produce perfume (1).
- Financial economies ( 1 ) the firm finding it cheaper / easier to borrow from banks (1).
- Research and development economies (1) develop new perfumes (1).
- Selling / marketing economies ( 1 ) lower average advertising costs (1).
- Risk-bearing economies ( 1 ) selling perfume in more markets (1).
6
Maximum of 3 marks for a list of different types of internal economies of scale with no development / explanation.
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