Economies of scale, in minimalistic terms, is the cost advantage arising when the output of a product is increased. When, on a larger scale, more units of a service or a good is produced, although, with fewer input costs, you may say that economies of scale have been achieved.
Economies of scale homework answers are something that students of economics usually look for. This is a topic that you will eventually come across if you are studying the subject.
So, what actually are economies of scale? To define it, economies of scale are the aspects of increasing scale that results in falling long-run costs.
In alternation to that, this means that with the growth of a company and an increase in its production, there are better chances of decreasing its cost. As per this theory, when economies of scale are realized, economic growth can be achieved.
According to Adam Smith, the father of modern economics, specialization, and division of labor are the two primary means of achieving a return or production that is larger. With the help of these techniques, employees would be focus on a certain task.
Also, they will be able to improve on the skills that are required for performing their jobs. They can perform in a better and faster manner. Therefore, through an efficiency like this, money and time can be saved while increasing the levels of production.
Along with economies of scale, diseconomies of scale are also existent. This happens when the inputs are more in proportion to production. This directly indicates inefficient factors with the industry or firm, which causes the average costs to rise.
If you are a student, an understanding of economies and diseconomies of scale is important for your economies of scale homework answers. You better get hold of these terms to complete your homework properly.
External and Internal Economies of Scale
When costs are reduced by a company and production is increased, what is achieved is internal economies of scale.
On the other hand, external economies of scale happen outside a firm, although within the industry. Therefore, when the scope of operations of an industry expands because of certain reasons and in subsequently results in decrease in cost for firm within the concerned industry, what is achieved is external economies of scale. When external economies of scale are achieved, all the firms within an industry is benefitted.
How are economies of scale realized?
Apart from division of labor and specializations, there are different inputs with a company that can cause the production of a service and a good. If your economies of scale homework answers require you to write about these inputs, you would want to know about them. They include:
Certain inputs, like advertising, research and development, skilled labor and managerial expertise are known to be expensive. Although, with inputs like these, there is a possibility that efficiency will be increased, which would result in decrease in cost of selling and production?
Economies of scale can be achieved if utilize the expense of such inputs to increase the production units. For example, a fast food chain may opt to invest in technology in hopes of increasing efficiency eventually by lowering the cost of a food item. In that case, there must also be an increase in production of the concerned food item for covering the expenditure on technology
When inputs are bought by a company in bulk, it may benefit from discounts in volume. An example could be a food chain may buy potatoes in discount for making French fries.
With an increase in a companyâ€™s scale of production, the company may employ specialized machinery and labor, which would result in better efficiency. A simple reason would be that specialized labors would be more eligible for performing the concerned job.
Again, coming to the food chain example, if they hire someone who already knows how to make French fries, they wonâ€™t have to waste time on worker who would require time to learn how to do so. A dedicated French fry maker can be the example of specialized machinery.
When the scale of production is large, a company can utilize improved organizational skills for its resources, such as a chain of command. Meanwhile, they can even improve techniques used for distribution and production.
As they say, practice makes perfect. Just like improved technique and organization, the process of learning in production, distribution, and selling can lead to improved efficiency over time.
It is also worth mentioning that the factors and inputs mentioned above can also be used for realizing external economies of scale. With the fast food chain example, all the fast food chains situated within a particular location may benefit from skilled labor and low transportation costs.
As we said before, it is also possible for diseconomies of scale. When you are working on your economies of scale homework answers, you not only need to know when economies occur but also when diseconomies do. Inefficient labor or managerial policies, deterioration transportation network and excessive hiring may result in diseconomies of scale.
Also, when the scope of a company increases, the company may be required to deliver its services and goods in relatively more dispersed areas. This results in an increase in average costs, which further results in diseconomies of scale.
While certain inefficiencies and efficiencies arenâ€™t affected by area, some of them are rather a location specific. If there are several plants of a company throughout a country, a costly input like advertising may be beneficial for them. Inefficiencies and efficiencies can also result from a certain location, such as poor or good climate for farming.
The Bigger, the Better!
The effects of expansion of business to seek economies of scale are debatable, and so are globalization of economy and international trade. It has been claimed that with the rise of transnational corporation, small business would eventually die. Not only, there would be a negative effect on environment, there would be no growth in developing nations, and workforce and consumer will become less visible.
With businesses getting bigger, there would be a weaker balance of power between supply and demand, which would make the company bet out of touch with its consumerâ€™s requirements. Furthermore, it may so happen that competition would disappear virtually with large companies starting to integrate. If that happens, monopolies might be created with a focus on making more money rather than considering about consumers.
Despite so much of explanation, it is completely possible for you to require some help with your economies of scale homework answers. Thankfully, you have something like online homework help services at your disposal. With expert online help, you get the kind of guidance and assistance you have been looking for.
It is important for companies to know that sources differ with economies and diseconomies of scale. When a company is strategizing an expansion decision, they need to balance out the effects that different sources have in a way that greater efficiency is achieved overall, but the average cost of all the decisions is lowered.