Question

Empirical evidence on the shape of the average cost curve across industries is mixed. A 1992 study, by Robidoux and Lester, found that 57 % of Canadian firms had economies of scale, 23 % had neither economies or diseconomies of scale, and 14 % experienced diseconomies of scale. Can you think of examples of firms or industries that might fall into each category? Why would the firm experience economies of scale? Why would a firm experience diseconomies of scale? (150-250 words length)

Answer 1

Yes we can find many firms which are having economies of scale in our everyday life for example Walmart is able to offer everyday low prices due to its purchasing power . As Walmart purchase goods in bulk quantities and sell them in smaller quantities it brings down the average cost of purchase for Walmart thereby increasing their profitability. For example the cars industry is highly competitive and requires specialisation. Which means lesser number of workers doing more work. It requires huge investments and proper planning to reap the economies of scale. Economies of scale arise due to cost reduction brought about by increasing production. As a production increases the cost of producing is spread out over a large number of units. Economies of scale after two types they are internal economics of scale and external economies of scale. Internal economies of scale arise from management sufficient operation and other factors which are internal to the organisation. External economies arise from factors which are out of the purview of organisation such as industry geographical location and government.

On the other hand diseconomies of scale arise due to reckless and it becomes difficult to manage for example it might take longer time to make decisions due to a gap in communication confusion will arise. after an increase in production if the company is not able to market the process properly then Aras marketing diseconomies of scale