This question attracted a good number of candidates who performed above average. However, few of the candidates could not clearly distinguish between small scale production and large scale production. Candidates were expected to answer thus:

(a) Small scale production is production with small capital outlay and therefore at a low level of output. On the other hand large scale production is production with a large scale outlay and therefore results in high level of output.

(b) Some of the internal economies of large scale production are:
(i) Technical economies: a large firm has the advantage in the use of factor inputs which results in lower cost per unit of output.

(ii) Financial economies: a large scale producer can borrow money from financial institution at lower rate because it can offer better collateral security.
(iii) Marketing economies: a large firm can buy inputs in bulk and possibly at discounts. It can also pay less on transportation and advertisement which result in lower operating cost.

(iv) Managerial economies: when output is increasing managerial cost increases at a slower rate. Number of managerial staff may increase with output. OR as output increase, specialists can be employed to take charge of the various processes e.g. marketing.

(v) Risk-bearing economies: a large firm is able to bear losses arising from its operations as it can provide insurance coverage. OR It can also diversify its product and its market.

(vi) Welfare economies: a large firm can provide better conditions of service which may enhance the level of productivity and also attract highly skilled manpower.

(vii) Research economies: a large firm can invest huge amount on research and thereby experience technical progress.