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Internal economies of scale essay


internal economies of scale essay

result from the specialization of the capital equipment and from the indivisibilities Modern technology usually involves a higher degree of mechanization for larger scales of output. Financial economies of scale: these occur if larger businesses are able to raise finance more cheaply than smaller businesses. This is because workers would be better qualified for a specific job, for example someone who only makes French fries, and would no longer be spending extra time learning to do work not within their specialization (making hamburgers or taking a customers order). External economies of scale occur outside of a firm, within an industry. In a competitive market, therefore, input prices go down.

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If the unit cost falls as the scale of operations increases, the business is said to be benefiting from internal economies of scale. What are internal economies of scale and what are some examples of economies of scale that a business can use in the long run? They also lead to lower prices and higher profits. If long run average total cost curve (lrac) is declining, then internal economies of scale are being exploited.

Those that oppose, as seen sometimes in the deadly demonstrations held outside World Trade Organization (WTO) meetings, have claimed that not only will small business become extinct with the advent of the transnational corporation, the environment will be negatively affected, developing nations will not grow. This cumulative -volume experience leads to higher productivity and hence to reduced costs at larger levels of output. Economies and diseconomies of scale also determine the returns to scale. According to theory, economic growth may be achieved when economies of scale are realized. As a result the average cost of the firm begins to rise. When economies and diseconomies are in balance, returns to scale are constant. This can actually increase average costs resulting in diseconomies of scale. (a) Internal Diseconomies: Internal diseconomies arise within the firm and external diseconomies arise outside the firms, mainly in the input markets. They could stem from inefficient managerial or labor policies, over-hiring or deteriorating transportation networks (external DS). Implementation decisions are delayed due to coordination problems.


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