Definition Of Functional Level Strategies

Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

Other scale economies can be Multi-Product ES (“Economies of Scope”); indeed, different types of cereals can be produced in a very similar way, not requiring different production facilities, but leveraging the existing ones. The same can also be applied to packaging/bagging, which is the main source of Economies of Scale, because the Big Three use the same

They can only produce small batches. Scale economies have brought down the unit costs of production and have fed through to lower prices for consumers. Economies of scale are a key advantage for a business that is able to grow. Most firms find that, as their production output increases, they can achieve lower costs per unit. Economies of scale are the cost advantages that a business can exploit by expanding their scale of production. The effect of economies of scale is to reduce the average (unit) costs of production.

“Economies of scale are unit cost reductions associated with a large scale of output” as it is able to spread over the fixed costs over a large volume of quantity (Wickramasekera, Cronk & Hill 2013 p90). “First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry and the ability to capture scale economies ahead of later

            The economies of scale exist by the increase of the output of the goods through additional units while the costs decrease. On the other hand, the

Economies of scale and scope help producers lower their cost by producing the next unit of output at lower costs this trend continues until production reaches a level of diseconomies of scale where production is no longer running as efficient as it should. This tends to increase the barriers to entry for new competitors as when they enter the market they will experience a higher cost of production. Why? Solely because they have smaller economies of scale and cannot afford to sell the product at the same price as other much larger firms. Generally, economies of scale and scope positively affect General Electric. Since General Electric is one of the biggest conglomerates in the world it has the opportunity to offer products and services through the same organization. These products might be highly unalike but due to the wide range of businesses covered by GE the prospect is there. For example, GE, in order to continue a healthy relationship with valued customers, has allowed the multimillion dollar purchase of its jet engines to be financed over long periods of time. The catch is that these finance opportunities are usually done via a leasing arrangement from GE Finance. In recent year GE has pursued a service strategy when it comes to selling aircraft engines. They sell what they call “power by the hour” this enables the private firm to indirectly rent the engine turbines, in return the firm would award GE with maintenance contracts on the engines. This

What are the challenges of managing and growing economies of scale and economies of scope operations?

The Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views.

Although perfect competition would bring us the maximized economic efficiency, monopoly in certain industries such as water supply industry may seen to be more beneficial due to the nature of the industries. The reason for this is that in some industries which require scale economies, there is an absolute advantage of a monopolist over small firms in perfect competition—economies of scale—that the monopolist is able to produce its goods and services at a lower cost level because of larger scale of production, more efficient use of large machines, more specialized division of labour or even more efficient management. If we take scale economies into account, perfect competition leading to efficiency is not that preferable: shown in figure 4, the

In practice, economies of scale are often not as significant as they may appear, as the costs associated with their

Economies of scale are a Micro economics concept. Economies of scale give a cost benefit to an organization that produces goods in a very large scale. The cost per unit decreases as the production/ sales increases. This is because a firm may incur certain fixed cost which when apportioned to large units volume decreases the unit cost of a product. The Table below better illustrates the concept.

The smaller companies could produce a wider variety of sausages of specialty dinner sausages in smaller volumes though the smaller companies lacked the larger production desired by their customers. If a company were to try to become an economy of scale it would have to make sausages more cheaply at larger volumes than smaller volumes. The company would also have to be able to reduce costs like R & D over the bigger sales volume.

Increasing returns are the natural outcome of decreasing output costs and have external and internal factors which influence economies of scale (Ossa, n.d.). Economies of scale are influenced externally by industry size, rather than firm size and include

This firm would have various departments (e.g., finance, research and development, etc.,), these departments would have respective functions working towards the goal; however, on their own, the departments wouldn’t be purposeful.

Decreasing returns to scale or diseconomies of scale implies rising average costs (AC) as the firm’s output and scale increase (Samuelson and Marks, 2006).