Large Firms Gain a Large Advantage Because of Economies of Scale
Large firms gain many advantages over small firms for many different reasons. Firstly, there is bulk buying. Because they have a large capital and cash flow, they can afford to spend more money on things. As they can spend more money, they can buy more of one type of good. Since goods are packaged, shipped and processed, money is used for every group of products. When these products are bought in large groups then the cost goes down because the distribution and production costs are spread across many goods. This is known as 'bulk buying'.
Managerial economies of scale are where there are more managers in a company. As well as having large amounts of money, large companies also employ large amounts of people. Many of these people are therefore managers and people with managerial-type jobs. Because there are more managers, the company is organised much better. There are better ideas, the personnel department benefits due to experienced people and ideas are shared considerably better.
Large firms gain many advantages over small firms for many different reasons. Firstly, there is bulk buying. Because they have a large capital and cash flow, they can afford to spend more money on things. As they can spend more money, they can buy more of one type of good. Since goods are packaged, shipped and processed, money is used for every group of products. When these products are bought in large groups then the cost goes down because the distribution and production costs are spread across many goods. This is known as 'bulk buying'.
Managerial economies of scale are where there are more managers in a company. As well as having large amounts of money, large companies also employ large amounts of people. Many of these people are therefore managers and people with managerial-type jobs. Because there are more managers, the company is organised much better. There are better ideas, the personnel department benefits due to experienced people and ideas are shared considerably better.