Internal And External Economies Of Scale :: Economics

Internal And orthogonal Economies Of ScaleWhen a company reduces costs and increases production, internaleconomies of scale have been achieved. External economies of scaleoccur out of doors of a firm, within an attention. Thus, when an exertionsscope of operations expand due to for example the creation of a bettertransportation network, resulting in a subsequent reduction in cost fora company working within that industry, external economies of scaleare said to have been achieved. With external ES, all firms within theindustry will benefit.Economies Of ScaleIn addition to specialization and the division of labor, within anycompany there are various inputs that may result in the production ofa good and/or service* Lower input costs when a company buys inputs in bulk, say forexample potatoes used to exculpate french fries at a fast food chainit can take advantage of volume discounts. (In turn, the farmerfrom which sold the potatoes could also be achieving ES if thefarm has lowere d its average input costs through, for example,buying fertilizer in bulk at a volume discount).* Costly inputs around(prenominal) inputs, such as research and development,advertising, managerial expertise and skilled labor are expensive,but because of the possibility of change magnitude cleverness with suchinputs, can bakshish to a slump in the average cost of productionand selling. If a company is able to spread the cost of suchinputs over an increase in its production units, ES can berealized. Thus, if the fast food chain chooses to spend more moneyon technology to eventually increase strength by lowering theaverage cost of hamburger assembly, it would also have to increasethe number of hamburgers it produces a year in order to cover theincrease technology expenditure.* Specialized inputs as the scale of production of a companyincreases, a company can employ the use of specialized labor andmachinery resulting in greater efficiency. This is because workerswould be better qua lified for a specific job, for example someonewho only polish offs cut fries, and would no longer be spending unneededtime learning to do work not within their specialization (makinghamburgers or taking a customers order). Machinery, such as adedicated French fry maker, would also have a longer life as itwould not have to be over and/or improperly used.* Techniques and Organizational inputs with a larger scale ofproduction, a company may also apply better organizational skillsto its resources, such as a clear-cut chain of command, piece of musicimproving its techniques for production and distribution. Thus,behind the counter employees at the fast food chain may beorganized according to those taking in-house orders and thoseInternal And External Economies Of Scale EconomicsInternal And External Economies Of ScaleWhen a company reduces costs and increases production, internaleconomies of scale have been achieved. External economies of scaleoccur immaterial of a firm, within an industry. Thus, when an industrysscope of operations expand due to for example the creation of a bettertransportation network, resulting in a subsequent decrease in cost fora company working within that industry, external economies of scaleare said to have been achieved. With external ES, all firms within theindustry will benefit.Economies Of ScaleIn addition to specialization and the division of labor, within anycompany there are various inputs that may result in the production ofa good and/or service* Lower input costs when a company buys inputs in bulk, say forexample potatoes used to make French fries at a fast food chainit can take advantage of volume discounts. (In turn, the farmerfrom which sold the potatoes could also be achieving ES if thefarm has lowered its average input costs through, for example,buying fertilizer in bulk at a volume discount).* Costly inputs some inputs, such as research and development,advertising, managerial expertise and skilled labor are expensive, but because of the possibility of increased efficiency with suchinputs, can fly the coop to a decrease in the average cost of productionand selling. If a company is able to spread the cost of suchinputs over an increase in its production units, ES can berealized. Thus, if the fast food chain chooses to spend more moneyon technology to eventually increase efficiency by lowering theaverage cost of hamburger assembly, it would also have to increasethe number of hamburgers it produces a year in order to cover theincreased technology expenditure.* Specialized inputs as the scale of production of a companyincreases, a company can employ the use of specialized labor andmachinery resulting in greater efficiency. This is because workerswould be better qualified for a specific job, for example someonewho only makes French fries, and would no longer be spending supernumerarytime learning to do work not within their specialization (makinghamburgers or taking a customers order). Machinery, suc h as adedicated French fry maker, would also have a longer life as itwould not have to be over and/or improperly used.* Techniques and Organizational inputs with a larger scale ofproduction, a company may also apply better organizational skillsto its resources, such as a clear-cut chain of command, spellimproving its techniques for production and distribution. Thus,behind the counter employees at the fast food chain may beorganized according to those taking in-house orders and those