Distinguish between internal and external economies of scale. Differences between Economies of Scale 2019-01-13

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Econ 340 Exam 2 Flashcards

distinguish between internal and external economies of scale

Of course, internal economies of scale also depend on other factors, such as marketing economies, which basically states that a firm making bulk purchases on raw materials would be able to enjoy cheaper prices, such as financial economies, which states that as a firm increases its scale of production and need funds to buy more factors of production, it can get it from a bank at lower interest rates. Thus industry expansion stimulates the division of labor. External economies give an important role to history and accident in determining the pattern of international trade. This is called the economy of linked processes. The effect is to reduce long run average costs over a range of output. The benefits arising from expansion depend upon the effect of expansion on productive efficiency, which can be assessed by looking at changes in average costs at each stage of production.


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Distinguish between economies of scale and diminishing returns Essay

distinguish between internal and external economies of scale

Unless there is some institutional arrangement such as a commission that forces a rate reduction, the larger coal traffic and consequent lower unit costs will only increase railroad profits. Diseconomies of scale — the opposite of economies of scale — can also occur when a company expands. External financing is when someentity external to the company helps the company meets theirfinancial obligations. Production costs also reflect technological constraints, and producers employ the least costly method of producing any given output. Some voters who saw the pound and stock markets slide the next morning, and a general global panic, plus their Prime Minister David Cameron resigning,.

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What are the differences between internal and external economies of scale?

distinguish between internal and external economies of scale

The External sorting methods are applied o … nly when the number ofdata elements to be sorted is too large. The other factors of production are fixed. This will lead to the marginal product rising at first, because each additional worker will increase output by more than they increase the firms' costs. Large scale production has several economies. The law of diminishing returns only applies in the Short Run, when only one factor of production is variable and can be increased. We can, therefore, conclude that concentration of industries lead to economies of concentration. In this context it is an incidental condition that may affect a course of action, but that doesn't really help people unfamiliar with the word to grasp its meaning in the realm of economics.

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What are the differences between internal and external economies of scale

distinguish between internal and external economies of scale

If the extra worker makes more units than the employees were making on average before he or she joined, the average output per worker will rise, e. A large firm employs large number of workers. External economies of scale occurs due to a growth in the industry as a whole. Conversely, producing one more unit of output will cost increasingly more owing to the major amount of variable inputs being used, to little effect. The reason is easy to find out.

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External Economies of Scale

distinguish between internal and external economies of scale

These arise due to internal efficiency and are enjoyed by a particular firm and not by others belonging to an industry. Marketing Economies: When the scale of production of a firm is increased, it enjoys numerous selling or marketing economies. Have you ever wondered why the price of a digital camera keeps falling, while the functions and performance are high? Usually, technical economies arise for large scale firms with large-scale production. Over time these departments not only multiply in numbers but grow in size as well. The curves start to rise after a certain.

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What are the differences between internal and external economies of scale?

distinguish between internal and external economies of scale

Internal Economies : As a firm increases its scale of production, the firm enjoys several economies named as internal economies. The workers fail to identify themselves with the organisation and there is lack of harmony between their interest and the overall organisational goal. Its this switch to all costs becoming variable that separates the short run from the long run. Multiple-purpose river development projects are further cases in point. Thus, wastes are converted into by-products. Although railroads and electric utilities are often cited as examples of decreasing cost industries, what if the railroad or power plant is already fully utilized? A firm in the area should have less of a problem in finding supplies of labour with the skills required.


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Chapter 7: External Economies of Scale and the International Location of Production Flashcards

distinguish between internal and external economies of scale

To put it differently, because of the diseconomies of size, small firms not only tend to survive but flourish in certain trades. Such external economies are creatures of multiproduct activities and are similar to the technical external diseconomies cited above. Frederick Herzberg, a distinguished professor of management, suggested a reason why companies should not aim blindly for economies of scale:. Pages 143—159 in American Economic Association, Readings in Price Theory. It expands its capacity and consequently increases its output.

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External economies of scale

distinguish between internal and external economies of scale

For example, the development of electricity is an external economy to a firm utilizing it. The vital mechanism and social institution that facilitates such specialization is the price system, or market organization. The cost of writing the book is the same regardless of how many copies you publish. This will lead to the marginal product rising at first, because each additional worker will increase output by more than they increase the firms' costs. A close look reveals that the major cause of diseconomies is management problems. But, some of the external economies may be enjoyed by the smaller firms. Moreover, a large firm can conduct its own research to effect improvement in the quality of the product and to reduce the cost of production.


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What is the difference between 'economies of scale' and 'increasing returns to scale?

distinguish between internal and external economies of scale

For example, fast food outlets have a lowe+r average cost producing a multitude of goods than would separate firms producing the same goods. However, this law only applies in the short-term, as in the long run, all factors are variable. Likewise, there are tremendous economies in case of Jumbo-jet compared with the previous and much small generation of jets. These e arise due to the concentration of industries at a particular place. They are explained as follows — 1 Supervision over different activities done by different workers at various stages is a difficult task in a large firm.

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Differences between Economies of Scale

distinguish between internal and external economies of scale

This occurs because the preparation of the multiple products can share storage, preparation, and customer service facilities joint production. These are technical economies of scale, managerial economies of scale, marketing economies of scale, financial economies of scale, buying economies of scale, selling economies of scale, risk-bearing economies of scale and research and development economies of scale. Professor Marshall classified economies of large scale production into two types, namely internal economies of scale and external economies of scale. In the same way, they enjoy a lot of concessions in bank borrowing and advertisements. Farmers would be just as well off as if there were no railroad; freight costs would be 3.

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