Economies of scale.pptVIP

LOGO LOGO Economics of scale By Siquan Lee Please think about these questions Description of the contents Description of the contents End Contents Definition of Economics Of Scale sources Internal External Reasons Definition of Economics Of Scale Economies of scale occur when its Long Run Average Costs fall with increasing output. Therefore increasing production leads to increasing returns to scale and there is greater efficiency. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs(固定成本) are shared over an increased number of goods. Sources Internal External Internal Economics of Scale 内部规模经济 the cost per unit depends on size of the individual?firm. External Economics of Scale 外部规模经济 the cost per unit depends on the size of?the industry, not?the firm. Internal Economics of Scale Achieving internal economies of scale would mean that the firm would be enable to obtain higher profits due to the low average costs that are incorporated. In order to do this, a firm must implement various strategical methods in order to ensure that it can maximize its profits, including `bulk buying. External Economics of Scale There are a number of external factors which may affect a firms LAC (Long run average) cost. Some of these factors include improved transport facilities, access to cheaper power and infrastructure, and increased government regulation Most economies of scale are internal i.e. they benefit the individual firm. However, some economies of scale accrue to the whole industry. Average costs fall for firms because the industry grows in size. e.g. If there are more computer firms in silicon valley all benefit from lower average costs. Reasons Reasons Reasons By Siquan Lee LOGO LOGO