Economies of Scales
Meaning of Economies of Scale: -The term or word economies means advantages and the term or word scale means size. As a firm grows from small to large, it enjoys many advantages; these advantages are known as economies of scale. Economies of scale are those advantages, which help firms to reduce its average cost and increase its profit. Economies of scale may take the following form: Meaning of Internal Economies of Scale: -Internal economies of scale are those advantages which firms enjoy with in the firm itself, independently of what is happening to others. Due to internal economies of scale average cost decreases, price becomes cheaper; quantity demanded increases leading to more sales the firm expands in size. Meaning of External Economies of Scale: -External economies of scales are those advantages, which firms enjoy when many firms are located at a particular place. External economies of scale is enjoyed by all firms, either small or large. Due to external economies of scale the industry grows in size. It is external for all firms. Various Types of Internal Economie
Meaning of Economies of Scale: -When an increase in the scale of production yields a more than proportionate increase in output a firm is said to be experiencing economies of scale. (b) Indivisibility: Some capital equipment can only be used in large-scale production or else there will be great deal of unutilized capacity. means the sacrifice of other social facilities that could have been provided. In addition industrial developments will lead to the destruction or sacrifice of green fields and agriculture land. Economies of Disintegration: When a firm is very large in size, it prefers to disintegrate some of its parts to be produced by the smaller firms. Marketing Economies:(a) Buyers: Large firms have their own expert buyer, who knows which item to buy when to buy and how to buy. Specialized machines are being installed and are operated by specialized workers. These management problems may lead to diseconomies of scale. In large organizations where a large number of workers are working it becomes difficult to control them properly. This will lead to a decrease in the volume of output and hence average cost will be high. Since they buy in bulk they are able to get discount and reduce their average cost. Therefore, a fall in the return from one item or from one target market does not threaten their existence.
Common topics in this essay:
Scale Internal,
Scale External,
Labour Labour,
Diseconomies Scale,
Economies Scale,
Financial Economies,
Economies Buyers,
Information Research,
economies scale,
Skilled Labour,
Commercial Economies,
diseconomies scale,
external economies,
meaning,
external economies scale,
internal economies,
internal economies scale,
external diseconomies,
external diseconomies scale,
average cost,
scale ,
internal diseconomies scale,
various types,
various types,
various,
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