economies of scale

Examples of economies of scale in the following topics:

• Selling to Businesses

  • E-frastructure is the architecture of B2B, primarily consisting of a number of subcategories:
  • Outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions
  • Impacts of B2B e-commerce on the economy in general are evident in a number of areas:
  • Economies of scale and network effects: The rapid growth of B2B e-markets creates traditional supply-side cost-based economies of scale.
  • Furthermore, the bringing together of a significant number of buyers and sellers provides the demand-side economies of scale or network effects.

• Inventory Management

  • At different locations within a facility, or within many locations of a supply network, inventory management must precede the regular and planned course of production and stocking of materials .
  • These include the monitoring of material moved into and out of stockroom locations, as well as the reconciling of inventory balances.
  • Time: The time lag in the supply chain from supplier to user requires the availability of a certain amount of inventory for use during this lead time.
  • Economies of scale: To deliver one unit of product at a time, and in response to the specific need and location of a given user, would be costly and logistically difficult.
  • In contrast, bulk buying, movement, and storage translate into economies of scale and inventory.

• Mergers and Acquisitions (M&As)

  • M&A refers to the aspect of corporate strategy, corporate finance, and management dealing with the buying and selling of companies.
  • M&As are a form of inorganic growth.
  • Factors that matter include lower costs–shared activities, shared resources, economies of scale or scope-, and increased willingness to pay.
  • Economies of scope (aka, synergies) make product diversification efficient if they are based on a similar common use.
  • Diversify if (cost of having units A & B in same firm) < (cost of unit A in firm A) + (cost of unit B in firm B) - Boost in Willingness To Pay (aka, cross-selling) - Diversify if (WTP of activities A & B if done in same firm) > (WTP of activity A in firm A) + (WTP activity B in firm B)

• The Reasoning of Specialization

  • It also reduces the ability of individuals to survive outside of the system containing all of the specialized components.
  • This succeeds because we can work more efficiently if each of us specializes in the practice of a specific craft: I make all of the shoes; you grow all of the vegetables; she does all of the carpentry; etc.
  • Thus, Plato held that separation of functions and specialization of labor are the keys to the establishment of a worthwhile society .
  • This structure saves us money because of the economies of scale.
  • It also does not allow for flexibility because of the centralization of labor.

• The Prevalence of Small Businesses

  • Industries with a high concentration of small and medium-sized businesses (SMBs) generally do not require an enormous amount of capital investment up front.
  • The 80% of SMBs that reside in the service-providing sector is largely a reflection of the overall U.S. economy (services over goods), as well as the greater feasibility of service industries for small-scale entry.
  • The high concentration of SMBs in the service-providing sector also reflects a few realities of business.
  • In a global economy, manufacturing goods competitively involves being able to do so in high volumes in order to remain cost efficient.
  • Small businesses often begin in the services sector due to a number of factors.

• Competitive Advantage

  • Competitive advantage seeks to address some of the criticisms of comparative advantage.
  • The opportunity cost of cloth production is defined as the amount of wine that must be given up in order to produce one more unit of cloth.
  • This theory rests on the notion that cheap labor is ubiquitous, and natural resources are not necessary for a good economy.
  • The other theory, comparative advantage, can lead countries to specialize in exporting primary goods and raw materials that trap countries in low-wage economies due to terms of trade.
  • The competitive advantage theory attempts to correct for this issue by stressing maximizing scale economies in goods and services that garner premium prices.

• Small Businesses and U.S. Jobs

  • It has fluctuated slightly in response to economic conditions, declining slightly when the economy is doing well and increasing when the economy struggles.
  • Recent advancements in technology can reduce the amount of capital needed to start a small business and increase opportunities to scale up rapidly and cost efficiently.
  • This can come from a variety of places, including:
  • The small-business share of employment is relatively stable, as shown in the graph above: the bold red line representing all small businesses stays at around 50 to 55% of the total share of employment.
  • Discuss the growth of small businesses in relation to the U.S. economy

• Entrepreneurship and the Economy

  • Creativity and entrepreneurship are needed to combine inputs in profitable ways, resulting in large scale economic growth/development.
  • Entrepreneurial economics is the study of the entrepreneur and entrepreneurship within the economy.
  • If entrepreneurship remains as important to the economy as ever, then the continuing failure of mainstream economics to adequately account for entrepreneurship indicates that fundamental principles require re-evaluation.
  • The characteristics of an entrepreneurial economy are high levels of innovation combined with high level of entrepreneurship which result in the creation of new ventures as well as new sectors and industries.
  • Identify the characteristics of an entrepreneurial economy and the factors that lead to it

• Mixed Economies

  • A Mixed Economy exhibits characteristics of both market and planned economies, with private and state sectors providing direction.
  • Social market economy is the economic policy of modern Germany that steers a middle path between the goals of socialism and capitalism within the framework of a private market economy and aims at maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, public welfare and public services by using state intervention.
  • A mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.
  • Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects .
  • While there is not one single definition for a mixed economy, the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets.

• Socialism and Planned Economies

  • There are few clear examples of purely socialist economies; nonetheless, many of the industrialized countries of Western Europe experimented with one form of social democratic mixed economies or another during the twentieth century, including Britain, France, Sweden, and Norway.
  • They can be regarded as social democratic experiments, because they universally retained a wage-based economy and private ownership and control of the decisive means of production.
  • A planned economy is a type of economy consisting of a mixture of public ownership of the means of production and the coordination of production and distribution through state planning.
  • In socialism, planning refers to production of use-value directly (planning of production), while in capitalist mixed economies, planning refers to the design of capital accumulation in order to stabilize or increase the efficiency of its process.
  • Socialism is an economic system characterized by social ownership, control of the means of production, and cooperative management of the economy.