Define the term 'economies of scale'.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2017). The mark or mark type is shown in brackets.

1. [2] Economies of scale occur when the costs of production fall when the scale of operations is increased.
2. [1] Partial definition given (limited understanding).
3. [3] Sound explanation of two causes why diseconomies might occur. Diseconomies of scale are generally related to management challenges/problems associated with directing a large organisation, often with many divisions and spread across different locations/countries. Communication is often a major problem leading to diseconomies - excessive use of non-personal communication, mass of messages, long chains of command, messages distorted, information is delayed, poor decision-making, lack of feedback, and reduced management efficiency. Impersonal organisations – lose contact with employees – de-motivation – danger of staff alienation, especially in flow line manufacturing companies (use team work and job enrichment to address these issues). Poor co-ordination – with growth – difficult often to maintain control over the disparate parts of the organisation – purpose and mission not understood - duplication of effort – bureaucracy – this poor co-ordination can lead to higher production costs. Top heavy companies - company politics.
4. [2] Sound explanation of one cause or partial explanation of two causes.
5. [1] Limited explanation to identify causes, or partial explanation of one, or a list of two.