Question

Complete an Economic Analysis on the article attached (2-3 paragraph on the topic based on the article and your new found knowledge of Economies of Scale)

Free exchange: Land of the corporate giants | The Economist (is the name of the article)

Answer 1

The article states whether companies experience true economies of scale because of the vastness of the size of the companies or, the hugeness of the companies makes them inefficient .The benefits of vastness is not always experienced .The author gives arguments on both sides of economies of scale . As for instance if output is large , fixed costs get spread over large output. So container ships have less shipping cost due to the increase in their size. Thus output levels affect production cost in a market which is competitive.

Again the author states that as companies grow it becomes difficult to get economies of scale.Some companies like dairy farming experience savings on cost when they expand but others like railroad industry may not save on cost .Companies may feel the need to expand in order to stop competition and generate profit by raising the price.

The bottom line is that .big is not good always . What matters is not the vastness of the company but how the vastness is dealt with .The company's dealing with vastness helps to understand the benefits which is enjoyed by the company and the shareholders.