economies and diseconomies of scale

There are two forms of economies of scale:
Internal economies which arise because of the growth of scale of production within a firm.
External economies which occur from a growth in the size of an industry.
The greater the economies of scale the lower the long run average cost curve goes as economies of scale lead to falling average costs and therefore a downward shift in the curve.
There are 7 different forms of internal economies of scale:
1. Technical economies of scale.
This involves the law of increased dimensions. This can applied through the cubic law whereby cubic volume increases more than proportionate to surface area. Therefore this works in favour of larger economies especially when it comes to things such as transport and storage.
There is also economies of linked processes where propduction processes can be linked together under one plant which is important in complex manufacturing processes.
2. Specialisation and division of labour
With a larger firm you have far more employers and can therefore breakdown a poduction procees and designate smaller more specific tasks to each employer. With a more specific job the worker can become much more efficient an dexpertised in that area which means that production is far more efficient.
3.Bulk Buying economies
In the market it costs less per unit when you but in large quantities. Therefore the cost of the resource needed goes down in price for each unit the more you buy. So the larger companies in th eend get a better deal or as one might say a larger consumer surplus.
4. Marketing economies
In larger companies expensive advertising campaigns can be spread over huge volumes of sales which reduces the marketting cost per unit.
5. Risk bearing economies (lower risk)
There is far less risk involved if you are a company providing a diverse range of products. You have more objects to gain profit from and are more likely to attract consumers as you can provide more than smaller companies. Also if you are a well known company it is easy for you to expand a become a multinational compay and move the location of your plants and retail outlets around.
6. Managerial economies
By spliting up jobs in leadership and managing. And asssigning certain people to different departments within the firm. The firm saves money in administrstive jos and the company becomes a more efficient unit.
7. Financial econmomies
Finally there are financial economies where larger businesses find it cheaper and easier to raise money. Banks are much more likely to offer high loans to large business as they have much more faith that they will get back than if the were to give to a small business just starting up which is far more likely to go bust.

However if companies become to large diseconomies of scale occur causing an upward slope in the LRAC. This usual occurs due to mangerial problems. As the firm grows in size managing it becomes harder as there are far more activities to maintain control over.
There is also the problem of communication. Ina multinational company when you have branches in every country or simply alot of branches all over england, communicating to all of them with exactly the same information is ahuge challenge and often there is miscommunication.
Coordination goes along with managerial with so mant areas to control as large companies can be so diverse it is hard to maintain its movement and keep it all going together as there is so much to control.
Lastly there can be a problem with motivation among workers. With huge companies it is much harder to keep track of what you workers are doing and it is far easier for them to slack off or not work to their maximum capacity and many abuse this. Also if jobs become to specialised work can become incredibly monotonous and workers are simply not motivated as they are not being challenged in any way.

All these occur withina singular firm an dare therefore internal economies and diseconomies of scale. However if we look at industries as a whole they are different.
Local infrastructure can greatly benefit if there is a rise in the growth of a particular industry. For instance it may lead to the construction of a better local road network which in turn reduces costs to individual firms.
Or one firm may experience lower training costs as there employers have already been trained by another firm within that industry this is known as poachiong employers. However local authorities can run training programmes for a specific industry which aids all of the firms in that industry.
External economies will cause a downward shift in the LRAC of individual companies.

Ar any given level of output, its costs will be lower because the industry as a whole has grown.

Another thing which will push the LRAC downwards is the introduction of new technology which is more efficient and thus pushes the curve downwards.
Also if the government subsidises a n industry costs are less as it is partly paid for already, another external economy.

However there are also diseconomies which shift the curvew upwards.
This occurs if an industry expands too quickly and individual firms are forced to compete with each other and bid up the prices of factor inputs such as raw materials and wages. Hence cost rise.

In conclusion due to economies of scale the greater a compny is the lower its costs. This works up till a certain extent until it reaches such a size that it begins to lose control. It also is less aware of individuals and large companies cann often become quite corrupt.
Externally economies benefit all involved through the betterment of the work force and infrastructure it is simply a too rapid expansion that can have damaging effects.