Essay on Economies & Diseconomies of Scale

1125 Words Mar 16th, 2012 5 Pages
Economies and Diseconomies of Scale
A case for McDonalds & Movie Theaters

Michele Tarrence
Econ 202

Economies of scale are defined as ‘forces that reduce a firm’s average cost as scale of operation increases in the long run. The opposite of this would be diseconomies of scale, meaning ‘forces that may eventually increase a firms average cost as the scale of operation increases in the long run. Most every company has both the economies and diseconomies of scale that can be analyzed. In the following paragraphs I will tell of some of these scales in both movie theaters and the ever popular McDonalds.

McDonalds is the 8th most valuable brands in the world. They have approximately 32,000 restaurants located in over 120
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Executives at the firm level have many years of experience that is relayed to the new management in training to help all restaurants stay uniform. They can buy in bulk in order to keep it at a lower cost forcing their competition to stay at lower prices. They choose suppliers that can mass produce good quality food that turns out a good product that the consumers enjoy for both the price and taste. They are able to share advertising and research with the 32,000 restaurants in order to meet markets all around the world. They have advertised at such places as the Olympics and many other events reaching hundreds of thousands of people.

Some of the diseconomies may be that they have such a large production and operation that it can be hard to stay uniform for such a production. They must also keep their menu uniform throughout the world and yet they must accommodate the country and culture that they are located in. The suppliers cannot be located in an area that may be subject to a possible drought or other places that could be exposed to supernatural weather. This would drive the price of the product up making it less profitable.
McDonalds spends a lot of time in research, but some of these research projects have actually taken years to develop which in turn cost money making it harder to recoup the money spent. For example, it took McDonalds over 7 years to develop chicken nuggets and yet to accommodate customer
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