Economies of Scale Case Study:
Economies of scale are the types of microeconomics, which define the reduction of the cost of the product on the basis of the size of business. For example, large companies have a priority over the smaller ones, because they can produce more goods and sell them cheaper without any harm for their general profits. As a result they win the competition and destroy smaller companies which can not compete and exist reducing their prices. There are two main types of economics of scale: the internal and the external economics of scale. The first one, the internal economics of scale defines lower prices on the basis of the potential of the company, which does not depend on anyone.
If the company is developed enough to manufacture products in high quantities, it spends less on their production and as a result, it can reduce the price on the production and attract the customers from other similar but smaller companies with less potential on the same sector of the market. The external economics of scale generally depend on the outer factors, like the government and other large companies interested in the production. For example, due to the great size of the company the government believes in its potential and capability to fulfill the order successfully and on time and hires it the certain purpose (for example, if the city requires new roads or public transport, the local government will probably trust to a large company to cope with the work, than to a small firm).
The topic of economics of scale is important for every student who is going to become a successful economist or build a career. One should devote enough time to understand the meaning of the term economies of scale and study the problem of the direct example, the suggested for the analysis in particular. A student should read, interview, observe and do everything possible to collect enough information on the suggested topic about the economies of scale. One will have to analyze the cause and effect of the case and brainstorm the most effective methods which can improve the situation for the better and solve the problem.
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