20September 2017

The Concepts Of Economies And Dis-economies Of Scale

The concepts of economies and diseconomies of scale go hand in hand. Both the concepts, denote the changes in the output cost, because of the changes in the output levels. Both the concepts are important for the study of economics subject and also useful for organizations to check the point at which production increase can result in the larger per unit costs.

On this page, we are going to talk about this concept with an example. However, if any student who wants to take economic assignment help on this topic by professionals; can take assistance from BookMyEssay. It is one of the best platforms to ask for any kind of assignment related assistance on any topic.

Economies of Scale- An Introduction

It is a concept, which is used widely to do the study of economics as well as to explain the cost reductions that firm experiences, when their scale of operations increases. A firm would have accomplished economies of scale, because of the reduction take place in the cost per unit because of an expansion in the operations of a firm.

Now, understanding the cost, the cost of production is two types, variable costs, and fixed costs. The fixed costs are the one that remains the same, irrespective of the number of pieces of a product produced by a company. For an e.g. of that is the property cost or the cost of equipment. On the other hand, the variable costs are the one that amends according to the number of units of a product produced by a firm. The example of this is the labor cost and the raw material cost, and the reason for the same is – salaries are paid to people on a per unit/hour basis. The cost of a product remains the consolidation of both variable and fixed costs. An organization achieves economies of scale as the per unit total cost reduces because of the production of more units

Diseconomies of Scale – An Introduction

This refers to a point at which an organization enjoys economies of scale no longer, this is a point where per unit cost increases because of the production of a number of units. It can be the result of many inefficiencies, which reduces the profit earned from economies of scale. One example is an organization that produces shoes in a manufacturing facility which is large in size and also located at the distance of 2 hours from its retail outlets. The organization presently has the economies of scale as it produces 1000 units currently in a week, which requires load trips of 2 trucks to move the package of shoes to the shop. The same truck, when start producing 1500 units a week, it requires trips of 3 truckloads, this extra truckload cost is more than the economies of scale, which the organization has when it was producing 1500 units of shoes in a week. Under this situation, the organization should continue to produce 1000 units of shoes or hover for options to reduce the cost.

So, this is the difference between economies and diseconomies of scale. If talk about making an assignment on this topic or any similar topic, this is not an easy work, because, in the making of an assignment, the students are expected to add much more information, than just what is mentioned here.

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