The impact of economies and diseconomies of scale Tesco face

The impact of economies and diseconomies of scale Tesco face

As businesses grow and their output increases, they commonly benefit

from a reduction in average costs of production. Total costs will

increase with increases in output, but the cost of producing each unit

falls as output increases. This reduction in average costs is what

gives larger firms a competitive advantage over smaller firms. This

fall in average costs as output increases is known as Economies of

Scale.

Tesco benefit from economies of scale because they are constantly

opening new stores around the country, such as their new store in

Stockport. Therefore, they are always increasing their output, and so

benefit from lower average costs. That is why Tesco seem to have the

monopoly is supermarkets, as they have an advantage over smaller

supermarkets such as Morissons, who do not buy as much quantity.

In the short run, Tesco benefit from economies of scale by selling in

bulk. They do this using special offers, such as ‘If you spend £50,

you get 5p per litre off your fuel’ and also ‘Buy one get one free’.

These offers encourage us, the consumers, to buy in bulk. This means

Tesco are benefiting from economies of scale as they are selling more

quantity of their products, and are then able to buy more, and hence

reduce their average costs.

Tesco also benefit from economies of scale in the long run, because as

they are opening more stores, it means they are employing more and

more peopl...