Economies of scale
The advantages of size
Prep
Economies of scale
• Reductions in long term average costs that
arise through increasing the scale of
production.
Question
• Would you prefer to work for a large or a small
firm?
• What would be the advantages /
disadvantages of each?
Why do firms benefit from increasing
production?
http://www.economist.com/node/21538156
How does the shipping company manage to send a
t-shirt to Europe from China for just 2.5 cents (US)?
Why are profits currently falling in this industry?
How do firms like Maersk try to survive?
Economies of scale
Purchasing Marketing
Financial
Technical
Managerial Risk bearing
Diseconomies of Scale
Motivational
problems
Communication
problems
External economies of scale
Purchasing Marketing
Financial
Technical
Managerial Risk bearing
Research Question
• You are going to research and find out about how a particular company
benefits from economies of scale
• Example IKEA: To what extent does this multinational experience
economies of scale?
• Initial questions:
• What does IKEA produce?
• What factors of production does IKEA use? (how many tonnes of wood)
• Where does IKEA produce its goods
• How does IKEA market their products
• How does IKEA structure their management?
• What technology does IKEA use to produce their goods?
• How does IKEA transport their goods around the world?
• How does IKEA ensure that prices are kept low?