This include: Economies of Disintegration when an industry grows, it makes it possible to split up production into several processes. For this reason, many businesses delay such a reorganization until it is too late to be effective. The concentrated firms may also popularize the quality of products through jointly giving advertisements. It can get loans from banks and other institutions at cheaper rates of interest. Economies of scale occur when increasing output leads to lower long-run average costs. For example, the textile mills in Bombay, Surat and Baroda are producing different varieties of clothes. Managerial Economies A big firm is subdivided into departments.
. The cost of editing is the same. Financial economies A bigger firm can get a better rate of interest than small firms 9. It can improve its methods of production. Economies of Concentration : When the industry grows in size, all the firms in the industry get the following economies — a Supplementary industries are established in that area. Therefore only a large firm will be able and willing to undertake the necessary investment. Belknap Press of Harvard University Press.
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. Delegating tasks and responsibility not only saves time but also equips lower level employees with better skills, rather than waiting for the higher levels of management to give direction on every task. Social facilities such as transport and communication get improved considerably. By specialising in certain tasks or processes, the workforce is able to produce more output in the same time. Some firms grow, but the cost-per-unit of the products remains stable.
A good example is an assembly line with many different jobs. Reduction in cost per unit resulting from increased production, realized through operational efficiencies. There also exists a close link between motivation and communication; thus when communication breaks down motivation crashes head-first. Deliberation in teams on the best ways of undertaking certain tasks can significantly improve operations. Seddon claims that arguments for an economy of scale are a mix of a the plausibly obvious and b a little hard data, brought together to produce two broad assertions, for which there is little hard factual evidence. Internal Economies of Scale Internal economies of scale refer to those economies secured by a firm due to an increase in its size of production. Teamworking involves the splitting of employees into teams with the goal of improving interaction at the workplace.
Frederick Herzberg, a distinguished professor of management, suggested a reason why companies should not aim blindly for economies of scale:. External economies of scale External economies of scale occur within an industry. This leads to improved expertise in certain fields of production thus saving time. Risk Bearing Economies In case of a loss experienced in one encounter, it can be easily balanced. Therefore, making them larger usually results in less fuel consumption per ton of cargo at a given speed. Institutions and can publish some trade and technical journal. Now, government make money too.
The disintegration can be vertical or horizontal. In the pulp and paper industry it is economical to burn bark and fine wood particles to produce and to recover the spent pulping chemicals for conversion back to a usable form. The large scale firms can use the raw materials effectively and they use wastage of raw materials to produce subsidiary products. It can secure domestic as well as foreign markets for its products. Internal d iseconomies of scale Economic theory also predicts that a single firm may become less efficient if it becomes too large. Entry of the new firms enables the firms to produce their output at lower cost. Both of these have negative implications for future growth.
In the same way association re-establishes, now on a rational basis, no longer mediated by serfdom, overlordship and the silly mysticism of property, the intimate ties of man with the earth, for the earth ceases to be an object of huckstering, and through free labor and free enjoyment becomes once more a true personal property of man. Welfare economies: A large firm can adopt more welfare schemes for promoting the interest of its workers. Marx points out that concentrated private ownership of large-scale economic enterprises is a historically contingent fact, and not essential to the nature of such enterprises. This allows the processes to be carried out efficiently by specialised firms. These factors may include communication breakdown, lack of motivation, lack of coordination, and loss of focus in the management and employees. Economies of Information It's expensive for an individual firm to do an extensive research on its own. Internal and external economies and diseconomies of scale External economies and diseconomies External economies and diseconomies of scale are the benefits and costs associated with the expansion of a whole industry and result from external factors over which a single firm has little or no control.
For example, it might take longer to make decisions, making the company less flexible. Eastern European countries after realizing conditions were far better in the west than in the east they decided to transform their economies similar to ones in the West. External economies of scale accrued to a firm may become internal economics to another firm. Better means of transportation and communication are available. In may be remembered that exact classification of economies into internal and external is not possible.
They are explained as follows. This may be due to indivisibility of factors of production. Sometimes a company chases economies of scale so much that it becomes too large. Time lags in the flow of information can also create problems in terms of the speed of response to changing market conditions. Why is the average price of smartphones falling whilst the functions and performance level are always on the rise? Diseconomies of scale happen when a company or so large that the costs per unit increase. Specialization and division of labour In large scale operations workers can do more specific tasks.