Economies of Scale, a crucial concept of Managerial Economics. How increased production benefits you!!!

1. Why are some industries, such as the automobile and
aircraft industries, and the petrochemical industry,
dominated by a few large companies but others, like the
local retail outlets, operated by a large number of small
firms?
H A V E A T H I N K A B O U T T H E A N S W E R T O T H I S A N D J O T
D O W N S O M E N O T E S

2. ECONOMIES
OF SCALE
ECONOMIES | DISECONOMIES
Types
Reasons
Effect

3. The amount of benefits
accrued or earned due to
increased level of
production
OR
Increasing production
levels would bring
economies

4. Production and
Costs

5. Production and
Costs

7. PECUNIARY
|
EXTERNAL
Economies of
Scale
REAL
|
INTERNAL
Economies
of Scale
TYPES OF ECONOMIES OF SCALE

8. 1
They arise “with in” or “inside” a firm
3
They are particular to a firm and
enjoyed by only one firm
5
effectively controlled by the
management of a firm
2
They arise due to improvements in
internal factors
4
arise due to increase in the scale of
production
BUSINESS SECRETS OF THE
FIRM
Internal Economies of Scale

9. 1
increased
Dimension
2
By-products
3
Diversification
of Market
4
Superior
Techniques
5
Managerial
Economies
METHODS OF ACHIEVING
INTERNAL
ECONOMIES

10. 6
Linked process
7
Vertical
Integration
8
Research and
Development
9
Inventory
Economies
10
Functional
Economies
METHODS OF ACHIEVING
INTERNAL
ECONOMIES

11. DEVELOPED
INFRASTRUCTURE
easy to source raw material and
other supplies+
Reduced transportation cost
GOVERMENT FACTORS |
WELFARE
At times physical factors also
contributes
SKILLED WORKFORCE
Profound availability leads to
quality production at lower cost
AGGLOMERATION
Localisation of the industry
External Economies
of Scale!

12. Multiple retailers and
small grocers
Multiple retailers such as Wal-Mart, Tesco, Sogo and
Carrefour exploit economies of scale as much as they can.
They maximise the benefits of bulk buying as they purchase
huge quantities of materials from suppliers. They become the
major customers even for the largest of manufacturers such a
Heinz. They also get the advantages of the economic
employment of specialist staff, power with the banks, and, as
major employers of staff, influence within the local
authorities. Prices are low to the customer, profits reasonable
to the shareholders. Some stakeholders may suffer, e.g. the
small supplier, particularly of agricultural products may be
forced to offer lower and lower prices to maintain their
supply contracts.

13. Doubts??
Contact
3rd Floor, Faculty ROom
Email Address
AEG, Sec-125, Noida
sachin.kumar@abs.edu.in