UrbanPro
true

Take BA Tuition from the Best Tutors

  • Affordable fees
  • 1-1 or Group class
  • Flexible Timings
  • Verified Tutors

Search in

Economies And Diseconomies Of Scale

R Sudharsan
16/02/2018 0 0

Economies of scale:

Economies of scale refers to the situation where long-run average costs fall as the scale of production is increased. If all factor costs are constant, then increasing returns to scale will result in economies of scale.

Possible causes of economies of scale include:

  • specialisation and the division of labour, where work is broken down into smaller and smaller tasks in which workers specialise, thereby becoming more efficient and productive.
  • Indivisibilities which refers to the impossibility of dividing some factors (eg large machinery) into smaller units.
  • The “container” principle, whereby the average cost of a unit of output produced by capital equipment that contains things (eg oil tankers) falls with the size of the capital equipment.
  • The greater efficiency of large machines.
  • The production of by-products, in sufficient amounts that they can be sold profitably.
  • Multistage production, which saves the time and cost involved in moving unfinished goods between locations.

These are all plant economies of scale, which arise because of the large size of the factory.

Other possible economies of scale include:

  • Organisational: Perhaps due to rationalisation, which involves reorganizing production to reduce waste and duplication
  • Sspreading overhead costs, ie the general costs associated with running a business that are only loosely related to output level, eg marketing, human resources
  • Financial economies, eg lower interest costs, discounts for bulk purchases
  • Economies of scope, when increasing the range of goods produced reduces the
  • Cost of producing each good, eg shared marketing.

Diseconomies of scale:

Diseconomies of scale refer to the situation where long-run average costs rise as the scale of production is increased. They may arise from:

  • Managerial problems of co-ordination and communication.
  • Alienation and poor motivation of the workforce.
  • Poor industrial relations.
  • Problems in one area holding up all production.
0 Dislike
Follow 2

Please Enter a comment

Submit

Other Lessons for You

Why Study Economics?
Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. Probably the most important reason for studying economics...

For better memory
While going through lengthy texts, always write down, alongside, on a notebook. Not only will it help you make notes and better your writing speed, it'll help you retain the content for longer.


Pareto Efficiency: Some definitions
We need to know Pareto improvement to understand Pareto Optimality/Efficiency. Pareto Improvement If we can find a way to make some people better off without making anybody else worse off, we have a...

Looking for BA Tuition ?

Learn from Best Tutors on UrbanPro.

Are you a Tutor or Training Institute?

Join UrbanPro Today to find students near you
X

Looking for BA Tuition Classes?

The best tutors for BA Tuition Classes are on UrbanPro

  • Select the best Tutor
  • Book & Attend a Free Demo
  • Pay and start Learning

Take BA Tuition with the Best Tutors

The best Tutors for BA Tuition Classes are on UrbanPro

This website uses cookies

We use cookies to improve user experience. Choose what cookies you allow us to use. You can read more about our Cookie Policy in our Privacy Policy

Accept All
Decline All

UrbanPro.com is India's largest network of most trusted tutors and institutes. Over 55 lakh students rely on UrbanPro.com, to fulfill their learning requirements across 1,000+ categories. Using UrbanPro.com, parents, and students can compare multiple Tutors and Institutes and choose the one that best suits their requirements. More than 7.5 lakh verified Tutors and Institutes are helping millions of students every day and growing their tutoring business on UrbanPro.com. Whether you are looking for a tutor to learn mathematics, a German language trainer to brush up your German language skills or an institute to upgrade your IT skills, we have got the best selection of Tutors and Training Institutes for you. Read more