Economies Of Scale And Scope

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

Economics of scale; refers to the cost advantages that a company have because of its scale of operation, size and output. Economies of scale are also seen as; if there is a decline in the unit costs of a product within the industry, this would cause the volume in output to increase which in turn would be very beneficial to existing firms. This barrier forces potential new entrants to try to come in on a small scale which would force a cost disadvantage to them. This is why existing firms with economies of scale have a cost advantage over small competitors and potential new entrants; because these entrants will also try to match existing competitors this would be disadvantageous to

However this latter argument ignores the fundamental advantage that big firms enjoy over small firms: economies of scale. Given the capital intensive nature of the energy industry it is most likely that large firms enjoy cost advantages that smaller firms will be unable to achieve; we can predict that the MES of an energy firm exists at an extremely high output level and so has a downward sloping long run average cost curve as seen below:

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.

            Most of the company’s strategy in remaining to be competitive is trying to differentiate and get over its rivals which has the intentions of realizing the preferred seller and will have the highest returns into the industry. Thus, the choice of the firm had been affected relatively to the minimum efficient scale and the major issues that had been tackled to this issue are the economies and diseconomies of scale and scope (Forgang and Einolf, 2007, p. 151).

General Electric (GE) is one of the most successful companies in the world and a large diversified multinational conglomerate. GE is broken into 9 business sectors, Global and Growth Operations, GE Capital, Healthcare, Oil & Gas, Power & Water, Energy Management, Appliances & Lighting, Aviation and Transportation. Once regarded as the most valuable company in the world in terms of market capitalization, GE’s performance has recently started to decline.

The large scale business can cut down their selling prices in the market which can increase the sales of their product and the as well as the increase in the market share. This increases threat to the low scale businesses which can be undercut in the market.

An example of Economies of scale can be the cloud services where cisco lays down the network and data centers which comprise of major investment in infrastructure and more the number of consumers for the cloud, lesser is the cost per unit storage.

In addition, existing companies benefit from economies of scale. Overall this threat is assessed at a medium level.

Also; Citigroup, Inc. another competitor for the GE Company made a total of $64.95 billion in 2011, and when we compare it with GE and SI its earnings where even less in the same year, making General Electric a leader in the industry. With this valuable information GE management can analyze its competitor’s financial statements results and from there they can evaluate their faults and create new ways to increase their annuals earnings and secure their place as one of leading companies in their industry. Another way GE can go forward in the industry is by adapting its services and products to other countries that need them.

Economics of scales: Firms that can exploit a scope of economies of scale, for example, cost reserve funds connected with marketing and technology. Economies of degree are additionally accessible to firms that merger and are advantages connected with utilizing the settled resources of one firm to create yield for the other firm. A merger empowers the firm to be more beneficial and have more noteworthy assets for innovative work.

With the industry adopting a more expensive and technologically advanced production system, it has created barriers to entry to smaller firms that cannot afford these advancements. This had left opportunities for larger companies to maintain their market share by being able to keep up with production demands.

Analysis - GE has likely been so successful over the years because of its ability to foresee major trends and capitalize upon them. In the 1960s, for instance, GE was one of the eight major computer companies. Even recently, since 1986, GE has continued to acquire several organizations; portions of NBC, wind manufacturing, universe pictures, aerospace industries, international firms, software and hardware manufacturing, even oil companies abroad. The company culture describes itself as not one company, but many each unit a vast and complex enterprise in and of itself, with a corporate

“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

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