Economies of Scale
Economics Test
1. Define and explain all Internal Economies of Scale:
· Internal Economies of Scale:Are reductions in long-run average cost
as the size and output of a firm increases. In other words, they are
advantages that large firms have because they are large. As they grow
larger in the long-run they manage to raise their output faster than
the rise in their total costs. The result is lower long-run average
cost.
- Marketing economies- Both in buying materials and selling its
finished goods a large firm is n a better position than a smaller one.
In buying the products it needs, the large firm often pays less for
raw materials, machinery and so on because suppliers are sure they are
going to get large orders and do not want to lose a big customer. E.g.
A producer of shoelaces will sell its products for ₤1 per packet to
Nike because it has an order of 1000 packets per week. But for Adidas
it will sell them ₤2 because it has only an order of 100 packets per
week. So Nike has a lower cost per packet compare to Adidas.
In selling its products, Nike can afford to pay for expensive and
professionally made advertisements or employ specialist salesmen much
easier than Adidas. The large total cost of advertising can be spread
over a large output that is sold. Therefore, the average cost of
advertising will be low.
- Financial economies- If Nike is going to borrow money because it is
a well known firm, it is considered more reliable, and less risky is
easier to borrow than Adidas. So Nike can borrow a large amount of
money with a lower interest rate compared to Adidas. E.g. If Nike
borrows ₤1, 000000 it will pay an 8% interest rate while if Adidas
borrows ₤1,000 it wil...
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firm is enjoying Internal Economies of Scale and its average cost
falls. Beyond this point, further growth would make the firm less
efficient. Instead of producing with a low average cost, extra
production would cause the average cost of each unit of output to
rise.
8. Why do small firms still exist?
- New firms - Firms do not start large. In other words. Many firms are
small because they are new. Those that will be successful are expected
to become large over the years.
- Desire to remain in control- Sometimes owners of small firms may not
want the firm to grow too large in case they lose personal control.
- Lack of Finance- Small firms find it difficult to expand because
they cannot raise finance. Large companies have huge retained profits
and also can sell shares to the general public. Small firms can
neither of these.
Intervention to encourage the growth of new firms is extremely common in the modern economy. The two main groups that intervene are policy makers and practitioners. A policy maker is defined as “a person responsible for or involved in formulating policies, especially in politics “ (Oxford University Dictionary 2013) in the case of firms formation this would usually be a government body local, regional or national or supra national in the case of the European Union. These people intervene generally for broad economic or macroeconomic reasons. Practitioners are defined as “one who practices something, especially an occupation, profession, or technique“ (American Heritage Dictionary 2000) in this context most likely a businessman of some kind. These professionals intervene for local economic or microeconomics reasons. Policy makers and practitioners often intervene to promote the creation and growth of new firms in the economy. Their reasons for doing are usually quite different but the results are often similar.
Sales and delivery personnel have a unique system and they work well together. Large sales force of over 10,000 individuals.
Focus on the needs of the customer and put the needs of the employee second, follow by the need of the leader as the last so to develop and grow the relationship of the customers while strengthening the
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Setup early warning system to inform customer about a potential stock out and supplier about a delayed order from CMO. This will help in reducing stock out situations.
customer at a time. They are more concerned with the quality of the service tha
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Determinants of Productivity Determinants of Productivity Productivity is the quantity of output formed by one unit of production input in a unit of time. Inputs used in the production of the goods and services are the major determinants of any country’s productivity; they are also called factors of production. There are four major determinants of productivity in any country’s economy. Land: the land itself, and raw materials such as oil and minerals beneath it. The natural resources that are available without alteration or effort on the part of humans.
Assign special key account managers for large customers. Introduce discounting policy and customer loyalty programs.
financing. They are often comparatively modest, in-order to help the founders get on their feet, build
In the first weeks, our inventory could keep up with the incoming orders in the supply chain which is the ultimate affect of the uncertain customer demand. As the wholesaler, I was dealing with the orders of the retailer who is responsible for the direct customer orders which was stable at
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Then again, many of the largest corporations in the world are deeply invested in making their
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Small businesses have a clear relationship with the economy in general, and if we take an example like the U.S. where over 86% of businesses ...