Sweet Spot

Sweet Spot: economies and diseconomies of scale and the LRAC curve for Edexcel IGCSE Economics

This free game is part of our Pearson Edexcel IGCSE Economics (4EC1) course for exams in EXAM YEARS 2027-2030.

How big should a business be?

Sweet Spot is a free 3D game about economies and diseconomies of scale for Pearson Edexcel International GCSE Economics (4EC1). It covers specification point 1.2.3 (b) and (c): the definition and four types of external economies of scale (skilled labour, infrastructure, access to suppliers and similar businesses in the area), the definition and four types of diseconomies of scale (bureaucracy, communication problems, lack of control, and distance between top management and workers at the bottom of the organisation), and the long run average cost (LRAC) curve annotated to show internal economies of scale, diseconomies of scale and where the business is most efficient.

You are the new growth adviser at the Brantwood Business Hub, in a town full of furniture makers. Every firm asks the same question: how big should we be? Kemi, a senior adviser, shows you round. Your job is to find each firm’s sweet spot: the output where its average cost per unit is lowest.

Grow the firm, watch the curve

Hold GROW and the factory grows in front of you, bay by bay, while its glass-fronted office block adds a floor of managers at a time. A live chart plots the firm’s average cost at every output you try, and a readout shows the working: average cost = total costs ÷ output. Glenmore Furniture uses the lesson’s own figures: £50,000 for 1,000 units is £50 a unit, £80,000 for 2,000 is £40, and £105,000 for 3,000 is £35. Total costs rise at every step, but the average cost falls, because Glenmore itself has grown: internal economies of scale such as buying oak by the lorry-load and keeping bigger machines busy.

Keep growing and the average cost starts to climb. Inside the office block you watch the four diseconomies of scale happen: a form climbing floor after floor to be signed by every layer of managers (bureaucracy), an order that changes as it is passed down until the workshop makes the wrong thing (communication problems), a worker in the far bay throwing good wood in the skip out of the supervisor’s sight (lack of control), and a boss on the top floor who never visits the workers far below (distance between top management and workers). Then you shrink the firm back and lock it in at the bottom of the U.

Label the exam diagram and diagnose a firm that is too big

Next the chart grows into the exam diagram: average costs up the side, output along the bottom and a U-shaped LRAC. You tap the downward-sloping part (economies of scale), the upward-sloping part (diseconomies of scale) and the lowest point (most efficient, with a dotted line down to 3,000 units), and each label is written on as you get it right.

Brantwood Beds, the firm from the lesson’s exam question, has grown so fast that it has seven layers of managers and its average cost per bed has risen from £120 to £135. You name each diseconomy from what you see happening, then shrink the firm to its sweet spot and discover that making fewer beds lowers the average cost, because it was past its lowest point.

External economies of scale: who grew?

Then Glenmore stops growing, but the town does. You open Brantwood College, which trains furniture makers (skilled labour), a new bridge and road to the port (infrastructure), a timber yard and a foam and fabric supplier (access to suppliers), and new workshops with a furniture fair (similar businesses in the area). After each one you press CURVE DOWN and watch Glenmore’s whole LRAC curve move down, from £35 to £27 a unit, without it making a single extra unit. For Pike Desks you read news headlines and decide who grew: if the firm itself grew it is an internal economy and the firm moves along its curve; if the industry or area grew it is external and the whole curve moves down.

Everything is taught before you are tested on it, and every wrong answer brings up a short explanation with a “Why not?” and a link to the lesson. Two exam checks ask for the definition of diseconomies of scale and the most efficient output from a table of total costs. A final rush gives you three firms with hidden curves against a bonus clock. The game takes about 8 minutes, works with a mouse, a touch screen or the keyboard, needs no login and runs on school Chromebooks.