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Economics Of Scale Analysis

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In regards to economics of scope, a firm can gain greater efficiency by combining two or more operational tasks or concurrently produce complementary or distinct products or services instead of singularly and separately producing products or services. In the long-term, a firm can lower average and marginal costs through advantages in economies of scope. As an example, Liberty University (LU) uses economies of scope by offering a wide spectrum of education specialties for the residential and distance student body (Zhang & Worthington, 2016). Across each and degree completion plan, LU captures a cost saving by using a similar production processes for all students by funneling each student through their particular coursework and degree plan. …show more content…

Moreover, economics of scale describes gains in efficiencies with task or production specialization. In this regard, constant returns to scale occur if both the inputs and outputs amounts increase proportionally (Salvatore, 2015). Although, an increasing returns to scale transpires when output amounts increase with a greater proportion than inputs thereby decreasing unit costs. As an example, if a firm borrows money at a lower interest rate than the competition and maintains the same output amount, then the firm would lower input costs and gain increasing returns to scale. Conversely, decreasing returns of scale can occur when input amounts increase with a greater proportion than output, and this effect increases costs per unit. For instance, a large firm with increasing controls or bureaucratic governance could unintentionally increase input costs at a pace that proportionally surpasses output amounts. Returning to the Liberty University example, each LU online curriculum has an economy of scale. In using production specialization or degree completion plans, LU reduces input costs and gains output efficiency, in the long-run, as students move through the coursework. Initially, LU incurs decreasing returns of scale during the creation and introductory period of a new class and materials while student input is low. This situation leads to higher costs per student. …show more content…

With an abundance of complexities to consider, the size of a firm is one decision factor into whether to downsize without changing wages or to keep all workers but reduce wages. Accordingly, a large organization may have the capacity within the workforce to alleviate the need to downsize by offering early retirement or buy-outs (van Dalen & Henkens, 2013). Therefore, the implementation of an attrition program may be an appropriate response for a large organization in addition to reducing wages for the remaining employees to return to a state of wage equilibrium. On the contrary, losing a critical “go-to” employee in a small firm may adversely affect the ability of the business to stay productive and profitable in the long-term (van Dalen & Henkens, 2013). Consequently, an appropriate decision in this case may be to cut the less talented employees and retain workers that are more

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