Analyse the economies of scale from which a farm may benefit.
There are several economies of scale a farm may benefit
· As farms increase in scale, they increase their purchasing power with suppliers. Through bulk buying, they are able to purchase inputs more cheaply, so reducing average costs. A farm can benefit purchasing economies for example by buying seed in bulk at a reduced price
· A farm can benefit from technical economies by using up to date, efficient equipment e.g. combine harvesters . Technical economies: This refers to the advantages gained directly in the production process. Some production techniques only become viable beyond a certain level of output.
· A farm can benefit from managerial economies by employing specialist workers e.g. farm managers. : In large-scale firms, these come about as a result of specialisation. Experts can be hired to manage operations, finance, human resources, sales, logistics and so on.
·A farm can benefit from financial economies by borrowing at a lower rate of interest. As farms grow they finding it easier to obtain a loan. Large-scale firms usually have better and cheaper access to borrowed funds than smaller firms. This is because the perceived risk to the lender is lower
· Risk bearing economies -a farm may grow a variety of crops. These might explain why, as firms get larger, they become more risk averse by spreading their business activities in a more diversified way