ECONOMIES AND DISECONOMIES OF SCALE ESSAY
Then any average involving Fixed Costs Numerator must decrease as quantity produced Denominator increases make sure you follow this ok. The larger the number of customers, more the random fluctuations of their demands tends to offset peaks and recessions, thus allowing the firm to hold a smaller percentage of its output to meet such random changes. Depending on the characteristics of an industry or market, some are more important than others. Marketing – advertising, endorsements promotional events do not directly depend on quantity produced. We can identify networks economies in areas such as online auctions and air transport networks.
When economies and diseconomies are in balance, returns to scale are constant. Agglomeration economies may also result resulting from the clustering of similar businesses in a distinct geographical location. Sorry, but copying text is forbidden on this website! This is usual for the motor- car industry, where the dealers build up garages and keep regular stocks of spare parts for various models. Similar to improved organization and technique, with time, the learning processes related to production, selling and distribution can result in improved efficiency—practice makes perfect!
Hi, I am Sara from Studymoose Hi there, would you like to get such a paper? These techniques save time in the decision-making process and speed up the processing of information, as well as increasing its amount and its accuracy.
Another example is the development of research and development facilities in local universities that several businesses in an area can benefit from. Personal contacts and communication between owner and managers and managers and labour get rapidly reduced.
Financial economies of scale: Essay on the Monetary Policy India Economics. However, the problem is not concentrated solely in such industries. Businesses quoted on the stock market can normally raise fresh money extra financial capital more cheaply through the sale issue of equities to the capital market. Economies of scale are when the cost per unit of production Average cost decreases because the output sales increases.
Economies of Scale Essay
The spreading of such overheads is lower per unit if the scale of output is large. Large firms apply techniques of management involving a high degree of mechanization, such as essayy, telex machines, television screens and computers. Avoiding diseconomies of scale A number of economists are skeptical about diseconomies of scale. When economies and diseconomies are in balance, returns to scale are constant.
Economies and diseconomies of scale
Likewise, performance-related pay schemes PRP can provide appropriate financial incentives for the workforce leading to an improvement in industrial relations and higher productivity. Diseconomies being to overweigh the economies and the costs begin to rise. If a business can sell more output, it may become progressively easier to sell even more output and reap the benefits of large-scale production.
They believe that effective management techniques and the appropriate incentives can do much to reduce the risk of rising long run average costs. Production economies may arise from the factor labour labour economiesfixed capital factor technical economies or from the inventory requirements of the firm inventory economies or stochastic economies.
The effect is to reduce long run average costs over a range of output. Thus, if the fast food chain chooses to spend more money on technology to eventually increase efficiency by lowering the average cost of hamburger assembly, it would also have to increase the number of hamburgers it produces a year in order to cover the increased technology expenditure. A good example would be the ability of the electricity generators to negotiate lower prices when finalizing coal and gas supply contracts.
Economies of Scale Essay Example for Free – Sample words
This is usual for the motor- car industry, where the dealers build up garages and keep regular stocks of spare parts for various models. In modern industry, firms need to change the style of their product quite frequently in order to meet the demands of their customers and the competition of the rival firms- A change in the model or style of the product often involves considerable expenses in research and development, and possibly on new materials and equipment.
Alternatively, this means that as a company grows, and production units increase, a company will have a better chance to decrease its costs. Accessed May 22, This can actually increase average costs resulting in diseconomies of scale.
Recruitment and retention of the most productive and effective employees makes a sizeable difference to corporate performance in the long run as does the flexibility to fire those at the opposite extreme! Depending on the characteristics of an industry or market, some are more important than others.
However, efficiencies and inefficiencies can alternatively stem from a particular location, such as a good or bad climate for farming.
The buyers of durables pay a lot of attention to the availability of spares and of good servicing-shops for the brands they buy. This is a form of division of labour. If a company has many plants throughout the country, they can all benefit from costly inputs such as advertising. When more units of a good rconomies a service can be produced on a larger scale, yet with on average less input costs, economies of scale ES are said to be achieved.
A company needs to determine the net effect of its decisions affecting its efficiency, econlmies not just focus on one particular source.