Question

Because the decision on the relocation of manufacturing operations in the United States is so important to Autoedge
What should AutoEdge do to obtain economies of scale with production? How do we know that you have achieved economies of scale? Conversely, how do we know if it is achieving diseconomies of scale?

Answer 1

The AutoEdge should relocate the manufacturing operations because this will help in reducing the average cost of production by reducing the variable cost of labor as the labor is cheap in the place where the company is trying to relocate. It will also help in increasing efficiency and thus more output can be produced at a lower cost and this will help in realizing economies of scale in production process.

In order to know whether the company has achieved economies of scale in the production process, the average cost of production of the company should fall with the increase in the number of units of the product produced. If the average cost is decreasing with increase in production, then the company has achieved economies of scale in production process. If the average cost of production is increasing with the increase in production, then the company has diseconomies of scale in production process.