1 Define internal economies of scale.

(2 Points)

The term "internal economies of scale" describes the financial benefits and increases in
productivity that a business can obtain by expanding its internal production or operations scale.
These internal company-based economies might result in a decrease in the average cost per
unit of output when the business grows in size or productivity.

2 Explain two possible economies of scale for Ford. (6 Points)

Purchasing Economies: Because Ford is a huge automaker, it may profit from purchasing
economies of scale. Ford can negotiate favorable pricing with suppliers if it purchases a large
number of raw materials, components, and parts. Ford can achieve lower costs, volume
discounts, and appealing payment terms by purchasing in bulk.

Technical Economies: By utilizing its substantial production volume to fund investments in

cutting-edge manufacturing technology and procedures, Ford can realize technical economies
of scale. Ford's ability to produce a large number of cars justifies the use of robotic systems,
automated assembly lines, and other cutting-edge equipment. These technologies can increase
production speed, accuracy, and efficiency while lowering unit costs.

3 Evaluate the importance of economies of scale to anyone considering starting a car

manufacturing business. (12 Points)
Cost-Efficiency: There is a chance to save a lot of money thanks to economies of scale. A
manufacturer can spread its fixed costs by manufacturing cars in huge quantities.

Supplier Relations: Economies of scale can enhance the manufacturer's bargaining power with
suppliers. When purchasing components, parts, and raw materials in large quantities, a
manufacturer can negotiate better prices, favorable terms, and secure a stable supply chain.
This can help reduce costs, ensure timely delivery, and mitigate potential supply disruptions.
Supplier Relations: Economies of scale can enhance the manufacturer's bargaining power with
suppliers. When purchasing components, parts, and raw materials in large quantities, a
manufacturer can negotiate better prices, favorable terms, and secure a stable supply chain.
This can help reduce costs, ensure timely delivery, and mitigate potential supply disruptions.