Economic Scale – Introduction
The scale economy (EOS) can be defined as a scale increase aspect that leads to a decrease in long-term unit costs. They can be classified in various ways as discussed below.
Explain the economy in detail
Internal / external: the internal economy arises from the growth of the company itself; In this case they can be controlled and under the influence of management decision making. The external economy arises from industrial growth, and does not depend on the size of the company. Therefore they are further from managerial decision making, although not entirely so; Location decisions specifically depend on these economies. The external economy is sometimes called economic concentration because they tend to arise when companies in the same industry lie close together. The internal economy scale is usually more important in terms of effect on unit costs.
Physical / Monetary: Physical economy causes an increase in scale returns; Monetary economy reduces input prices
Level: Products, plants and companies: In general, some cost advantages arise from producing more products, some of the produce with greater plant size, and some from producing with larger companies.
What is the discrimies scale?
Diseconomies of Scale (DOS) is a scale increase aspect that causes a long-term increase in unit costs. Once again they can be internal or external, physical or monetary, and can appear at the level of the product, plants or companies. There are more four main sources of diseconomies of scale, although this is not in accordance with the four economic scale categories described above.
Some examples on the economy scale
The scale internal economy emerged from the company’s long-term growth itself. Some examples are as follows:
Expensive capital input: Large-scale businesses can invest in expensive capital machines and specialists. For example, supermarkets may invest in new database technology that improve stock control and reduce transportation and distribution costs.
Labor Specialization: Inside a larger company there is a possibility of separating the production process to separate the tasks to increase productivity. The use of labor distribution in mass production of motorized vehicles and in manufacturing electronic products is an example of this type of technical economy.
Law Increasing Dimensions: Law of Important Dimension Increases in the Energy Sector and in Industries such as Office Rentals and Warehousing
As we have seen, the economies of scale exist when there is a reduction in the company’s long-term costs because the output expands. This can occur because companies can capture the advantages of specialization that might not be possible in companies that produce at a lower output level. For example, workers may experience a greater increase in proficiency if they concentrate on several specific tasks than in many different tasks. That is, the people who try to do everything might finally do nothing.