Economy of scale

The Economies and Diseconomies of Scale and Scope Introduction             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

up affecting the practice of economies and shared frames of reference on the nature of the problems. A minor phenomenon in Bangladesh can have substantial impacts in New York or London. The scale and size categories have become central to the analysis of what is happening. Institutional sizes are related to risk externalities [Makridakis / Taleb, 2009]. The work produced [Haug, 2007; May, 2008] offer an explanation of the consequences to take extreme risks in economies (extreme risk). Even considering

Economies of Scale As a company grows, not all costs increase with it, and some may even go down. Incumbent companies who have economies of scale can hence have a significant cost advantage over new entrants and smaller competitors. Economies of scale can be demand-side or supply-side and may be found in the cost of: • Original research • Raw materials • Manufacturing and production • Marketing to larger audiences • Shipments and logistics • Service and support • Attracting talented personnel Overcoming

Economies of Scope: 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

5.6 Economies of scale 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. Let’s take an example of cool drink manufacturer. Table 5.4 Economies of scale

ECONOMIES OF SCALE In microeconomics, economies of scale can be defined as a scale which is there when lager output is obtained with the lower per unit cost this is because the fixed cost is spread over the more units produced or generated. The phenomenon of economies of scale is being used by various organisations and business firms in the sectors like manufacturing plants or the entire unit. Need for economies of scales:- • The large scale business can cut down their selling prices in the market

External economies of scale occur when the cost per unit depend on the size of the industry but not necessarily on the size of any one firm(Krugman et al,2015:179).It also consists of potential reduction of average cost associated with higher level of productivity. Often differences between countries and economies of creating the need to trade, as thus economies of scale make it advantageous for each country to specialize in the production of an only limited range of goods and services (Krugman et

ECONOMIES OF SCALE : Case Studies & Examples Economies of scale occur when increased output leads to lower unit costs (lower average costs) This diagram shows that as the firm’s output increased from Q1 to Q2 , average costs fall from AC1 to AC2 Examples:- Tap Water – High Fixed costs of a national network The water companies had to invest in a large network of water pipes spreading without the country to produce tap water. This investment has a very high fixed

I. Short Answer (No more than one paragraph) 1. Define economies of scale, and provide an example of a telecommunications product or services that is currently thought to exhibit this economic characteristic. Repeat for economies of scope.  Economies of Scale is a phenomenon which can be described as diminishing cost per unit as a result of increased output.  Economies of scope can be described as a phenomenon where a single provider produces multiple goods or services and earns returns from different

Compare the concept of economies of scale with economies of scope. Both concepts have same principle which is to lower the production cost, cost savings and increase the marketing competitive advantage in order to gain the high return. However, they have different approach and strategy to save cost and increase return. The concept of economies of scale is cost savings that accrue from increases or expands in size or number. If two plants produce same unit, unit cost are lower in a large plant than