# 经济代写|微观经济学代写Microeconomics代考|ECON106

## 经济代写|微观经济学代写Microeconomics代考|Economies and Diseconomies of Scale

When a firm increases the scale of production there are three outcomes that can occur, as highlighted in Figure 5.5. Assume our pizza factory owner currently employs 50 workers and 10 machines in a factory with a floor space of $1,000 \mathrm{~m}^2$ and currently produces 2,000 pizzas per day. The total cost of producing these 2,000 pizzas per day is $€ 4,000$. The average cost of each pizza is, therefore, $€ 4,000 / 2,000=€ 2$ each.
Paolo doubles the input of all the factors of production and as a result now employs 100 workers, 20 machines and has $2,000 \mathrm{~m}^2$ of capacity. The cost of expanding the scale of production is clearly going to be higher, but what happens to the average cost depends on how far total cost increases in relation to the increase in output. If the total cost of production doubled to $€ 8,000$ and output also doubled to 4,000 , the average cost of each pizza would still be $€ 2$. The firm is said to be experiencing constant returns to scale. This occurs when long-run average total cost does not vary with the level of output.

If, however, the total cost of production at the new scale of production increased to $€ 6,000$ and output doubled to 4,000 , the average cost of each pizza would now fall to $€ 1.50$ each. The firm will experience increasing returns to scale, because the proportionate increase in output is greater than the proportionate increase in total cost. This is also referred to as economies of scale, which occur when long-run average total cost declines as output increases.
constant returns to scale the property whereby long-run average total cost stays the same as the quantity of output changes
economies of scale the property whereby long-run average total cost falls as the quantity of output increases
If the doubling of factor inputs (to 100 workers and 20 machines) leads to an increase in total costs (to $€ 10,000$, for example) that is greater than the increase in output (assume this is 4,000 ), the firm is said to experience decreasing returns to scale and the average cost per pizza would now be $€ 2.50$ each. When the long-run average total cost rises as output increases, there are said to be diseconomies of scale.
diseconomies of scale the property whereby long-run average total cost rises as the quantity of output increases
Note that when we talk about economies of scale we are referring to unit costs (or average costs). Clearly if a firm increases its capacity by building a new factory and then hiring more capital and labour to work in the factory, total costs are going to rise, but if the relative increase in output is greater than the relative increase in total costs as a result, then the unit or average cost will fall. We are referring to the concept of scale as the proportionate increase of all factor inputs and the resultant relative increase in output. Consideration must be given to the price of factor inputs. In our example, the price of labour is $€ 60$ per unit and the price of capital $€ 100$ per unit. If these prices remain constant, then a 50 per cent increase in all factor inputs would increase total cost by 50 per cent. If this 50 per cent increase in inputs leads to a 75 per cent increase in output then average costs will fall.

## 经济代写|微观经济学代写Microeconomics代考|External Economies of Scale

External economies of scale are the advantages of large-scale production that arise because of the growth of the industry as a whole. External economies of scale might be accessible to firms because of the concentration of firms in an industry in a particular area or region. For example, the City of London has a concentration of financial firms in banking, accounting, insurance and finance. This concentration of firms provides benefits through the supply of skilled labour, the access to expertise, the benefits which derive from reputation, training facilities, infrastructure, and local knowledge and skills. The growth of certain ports has brought with it considerable investment in infrastructure in roads and rail which help improve the efficiency with which goods can be transported across countries. Information exchange across some industries can be highly developed with trade journals, R\&D, market information and forecasting being shared across different firms. In agriculture, for example, farmers can access high quality information about prices, market supply forecasts and scientific developments which can help them to plan more efficiently and to maximize output and minimize inputs. In the north of England, there is a concentration of chemical plants around the River Tees. Chemical firms on Teesside can benefit from expertise in the emergency services who have been specifically trained to deal with fires or safety incidents involving chemicals. Firms may also be able to take advantage of local infrastructure or expertise in waste disposal which makes it cheaper per unit compared to having to pay for these costs individually.

The Causes of Diseconomies of Scale Diseconomies of scale can arise because of coordination problems that are inherent in any large organization. As the scale of operations increases, the management within the organization becomes more challenging and management teams can becomes less effective at keeping costs down. Communication between workers and management and between different functional areas become more difficult. This can result in decisions taking longer to implement, reduced flexibility in responding to customer and market changes, and rising unit costs.

In larger firms, worker motivation may be affected as they are more removed from the ‘big picture’ than may be the case in smaller firms. Some workers only ever see a small part of the whole production process, and it becomes more difficult for them to feel part of the business and have any influence in the way the business develops and operates. This can result in lower productivity and alienation and again, in rising unit costs.

Larger firms may also suffer from the problems of asymmetric information. When operations are on a large scale and scattered across many different countries, the actions of individuals employed by the firm become more difficult to control and monitor. Firms may have to put in place systems to monitor activity to try to encourage efficiency and effective decision-making, but this can be expensive. Even with such monitoring systems, firms may still not be sure that individuals in key positions in the business will make decisions based on what is best for the business. Some individuals may make decisions based on their own self-interest or make decisions which are misguided and not beneficial to the business. For example, how do firms know that the recruitment processes across all a business’s global operations are carried out fairly and with improving productivity in mind rather than the personal reasons of individuals involved? Is it necessary, for example, to increase the number of workers employed to improve productivity and efficiency, or is it more a case of some individuals seeking to boost their own status and power base?

# 微观经济学代考

## 经济代写|微观经济学代写Microeconomics代考|External Economies of Scale

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