Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 5% of your exam marks.
new
Rare
New5%
New emphasis in the 2027 syllabus; types of firms, the definitions of horizontal, vertical and conglomerate mergers, and economies/diseconomies of scale are examined directly. Guidance based on specimen materials.
As a firm grows, its average total cost (ATC) typically falls for a while and then, beyond some point, starts to rise. On a diagram this gives a U-shaped ATC curve.
Economies of scale are the fall in average total cost a firm enjoys as it grows in size and output.
Diseconomies of scale are the rise in average total cost a firm suffers once it becomes too large to run efficiently.
The lowest point of the ATC curve, where economies stop and diseconomies begin, is the minimum efficient scale (MES).
Internal economies of scale
These are cost savings a firm captures as it grows larger.
| Type | What it is |
|---|---|
Exam tip
Analyse the benefits of growing in size (6 marks)
What comes up: "Analyse the benefits a firm may gain from growing in size" (6 marks), or a discuss question on whether a larger firm benefits consumers (8 marks).
Write: A larger firm can gain economies of scale (1) — for example, purchasing economies from bulk-buying cut its average cost per unit (1), and technical economies from larger, more specialised machinery lower unit cost further (1). The mark scheme also credits financial, managerial and marketing economies. For 8 marks, add the other side: beyond a certain scale the firm may suffer diseconomies of scale (1) — communication and coordination problems, or weaker worker motivation, raise average costs (1).
Watch out: Do not just say "costs fall". The second mark in each pair is for explaining why cost per unit falls as output rises. For diseconomies, name a specific cause (communication, coordination or control problems), not just "the firm gets too big".