Lesson 5.1.3

5.1.3 Efficiencies and Costs of Business Growth Quiz: NCFE Business & Enterprise, Unit 5

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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This lesson explains how size affects costs. Economies of scale lower the cost of each unit as output grows, through purchasing, technical, managerial, financial and marketing savings. Past a certain size, diseconomies of scale push unit costs back up because of poor communication, coordination and motivation, and the lesson shows how to calculate and tackle them.

Key points

  • Economies of scale mean average cost per unit falls as output grows, because fixed costs are spread across more units.
  • Purchasing economies come from bulk buying, where a supplier cuts the price per crate to win a very large order.
  • Technical economies come from costly machinery that is only affordable at scale, such as an industrial oven or automated line.
  • Managerial economies arise when a large firm employs specialists, and financial economies arise because banks lend to large firms more cheaply.
  • Marketing economies spread one fixed advertising cost over many units, so the advertising cost per unit falls as sales rise.
  • Diseconomies of scale begin when a firm grows so large that average cost per unit starts to rise again.
  • Common diseconomies are communication breakdown through many management layers, poor coordination between departments and falling motivation, which firms can tackle by delayering or empowering small teams.

Key terms

Economies of scale
A fall in average cost per unit as a business increases its output.
Diseconomies of scale
A rise in average cost per unit once a business grows too big to manage efficiently.
Purchasing economy
A saving from buying materials in bulk at a lower price per item.
Technical economy
A saving from using large, costly machinery whose cost is spread across high output.
Average cost
Total cost divided by the number of units produced.
Delayering
Removing levels of management to shorten the chain of command.

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The 20 questions

  1. What does knowing where diseconomies of scale begin help a manager determine?

    • Maximum efficient output
    • Break-even point
    • Total fixed costs
    • Minimum viable scale

  2. A supermarket chain agrees a lower price per crate by ordering ten times as many. Which economy of scale is this?

    • Managerial economies
    • Purchasing economies
    • Financial economies
    • Marketing economies

  3. Which practice is an example of a managerial economy of scale?

    • Bulk buying
    • Shared transport
    • Specialist managers
    • Cheaper loans

  4. What type of economy of scale is gained by running an automated production line 24/7?

    • Technical economy
    • Purchasing economy
    • Financial economy
    • Managerial economy

  5. Booking one national TV advert instead of many local ones is an example of which economy of scale?

    • Financial economy
    • Purchasing economy
    • Technical economy
    • Marketing economy

  6. Why can a large public limited company usually borrow money more cheaply than a sole trader?

    • Higher taxes
    • Lower risk
    • Faster growth
    • More employees

  7. What happens when a firm grows so big that its average cost per unit starts to rise?

    • Diseconomies of scale
    • Internal growth
    • Market saturation
    • Economies of scale

  8. What is a primary cause of rising unit costs when a large firm suffers coordination problems?

    • Cheaper raw materials
    • Duplicated effort
    • Lower advertising fees
    • Reduced staff wages

  9. What action helps prevent messages from becoming garbled as a business grows large?

    • Centralisation
    • Outsourcing
    • Delayering
    • Diversification

  10. Which phrase best defines economies of scale?

    • Increasing profit margins
    • Falling unit costs
    • Fixed overheads
    • Rising total costs

  11. Getting a cheaper price per unit for ordering massive quantities of stock is known as what?

    • Financial economies
    • Technical economies
    • Purchasing economies
    • Managerial economies

  12. Employing a dedicated human resources expert is an example of which business benefit?

    • Managerial economy
    • Purchasing economy
    • Technical economy
    • Risk-bearing economy

  13. Buying expensive high-tech machinery that reduces the cost of producing each loaf of bread creates what?

    • Technical economies
    • Financial economies
    • Marketing economies
    • External economies

  14. Selling more units to spread a fixed advertising spend is an example of which economy?

    • Managerial economy
    • Marketing economy
    • Technical economy
    • Risk-bearing economy

  15. What type of economy of scale allows large businesses to secure lower bank loan interest rates?

    • Purchasing economy
    • Technical economy
    • Financial economy
    • Marketing economy

  16. A firm keeps growing, and past a certain size its average cost per unit starts to rise again. What is this called?

    • Economies of scale
    • Rising fixed costs
    • The break-even point
    • Diseconomies of scale

  17. Messages changing as they pass down too many management layers is an example of what?

    • External diseconomies
    • Poor communication
    • Financial inefficiency
    • Technical failure

  18. Conflicting departmental targets causing delayed customer orders is an example of which diseconomy?

    • Poor coordination
    • Marketing failure
    • Technical inertia
    • Financial friction

  19. Which business action best combats staff alienation and low productivity in a massive firm?

    • Extending direct supervision
    • Empowering small teams
    • Increasing batch sizes
    • Centralising all decisions

  20. If total costs rise from £40k to £60k while output doubles from 1k to 2k units, what is the new unit cost?

    • £60 per unit
    • £30 per unit
    • £40 per unit
    • £20 per unit

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