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Economies Of Scale Essay

2613 words - 11 pages

ECONOMICS OF SCALE
Name
Institution

Economics of scale
Introduction
Economies of scale is the cost advantages by enterprises due to size, input, or scale of operation with cost per unit decreasing with increasing scale as fixed costs are spread out more to units of output (Thatcher, 2009). The reason why some regions are more developed than other regions economically is because they produce their goods more efficiently and hence bringing more profit than competitor's regions. Since economies of scale lay it main focus on having an efficient production this shapes the economic development of regions. This paper is about economies of scale it describes how economies of scale shape the ...view middle of the document...

For example, the external scale economies have played a fantastic role in the growth and development of the motor sport valley. For the external economies, it can be described in five types this being; technical economies, purchasing economies, administrative savings, financial savings and risk bearing economies.
Economies of scale put focus on how to produce goods efficiently by ensuring that a low cost is used to produce many goods. Regions that apply economies of scale in their production are likely to end up being developed regions this shows how Economies of scale shapes economic development of the region (Norman, 2010).
External economies of scale
In the external economies of scale, it describes that there are positive externalities that come up, as result economies of scale. A business that has developed can improve infrastructure around it hence an advantage to it (Thatcher, 2009). One way of measuring the economic development of the region is by viewing its infrastructure, a developed region let's say a country has modern and well built infrastructure while a country that is underdeveloped has poor infrastructure. After applying economies of scale which are going to bring up efficient production and afterwards excellent profits, there are external positives that will come, as a result this includes a well built infrastructure. A fine will even attract more customers hence leading to great production of goods again the profits of the firm/organization will raise as a result of the same. For example, the Motor Sport Valley has a high impact in Britain (Pratten, 2011).
Specialization economies of scale
Economies of scale can be adopted through specialization of labor and maximum of use of equipment and machines. Since I have already put it across in the introduction that one cause of the region being more developed than another region can be the ability to produce efficiently. For any production to be efficient in any region or country the relevant machines and human resource must be applied. Economies of scale develop as the firm grows (Norman, 2010). A firm can only grow by ensuring it is producing the maximum output it can so as to spread the fixed cost of production. The best way of working out in the work in a firm, industry or organization it is by dividing the labor into parts, and then each labor is assigned a specialist. This is similar to Adam Smith division and specialization of labor. Then the necessary equipments to accomplish the tasks in the firm are used to ensure that no time is wasted bearing in mind that time is money. Most developed countries around the Global ensure there is maximum division and specialization of the labor force compared to developing countries like parts of Africa among others, this ensures there is the maximization of profit therefore developing the regions economically (Jones, 2007).
Purchasing economies of scale
Purchasing economies shows an economy of scale. Purchasing economies can also...

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