economies of scale

Examples of economies of scale in the following topics:

• Economies of Scale and Network Externalities

  • Economies of scale and network externalities discourage potential competitors from entering a market.
  • Economies of scale and network externalities are two types of barrier to entry.
  • A natural monopoly arises as a result of economies of scale.
  • Large firms obtain economies of scale in part because fixed costs are spread over more units of output.
  • Define Economies of Scale., Explain why economies of scale are desirable for monopolies

• Production Orientation

  • Industrial firms focused on production orientation models that exploited economies of scale to reach maximum efficiency at the lowest cost.
  • Economies of scale posits that by driving efficiency, companies (particularly production-oriented organizations) will realize significant cost advantages as they expand operations.
  • For example, companies that focus on increasing economies of scale will see reductions in unit cost as the size of facilities and the usage levels of other inputs increase.
  • Some common sources of economies of scale include:
  • Technological - taking advantage of returns to scale in the production function

• Infant Industry Argument

  • Economic markets are inherently competitive, and newer economies are highly vulnerable to their more developed counterparts in other countries for a variety of reasons.
  • The primary advantage to countries with higher economic power and bigger corporations is simply economies of scale and economies of scope, in addition to being further along the experience curve.
  • The reason for this is quite simply the significant jump in prosperity as international trade expanded, and the huge capacity for specialization, economies of scale, technology sharing, and a host of other advantages that have been a direct result of free global markets.
  • The problem still remains, however, that this prosperity is often unregulated and of the greatest benefit to the influential players in established economies, sometimes at the expense of exploitation of developing nations (cheaper labor, reduced governmental oversight, etc.).
  • The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market.

• Economies and Diseconomies of Scale

  • In economics, returns to scale describes what happens when the scale of production increases over the long run when all input levels are variable (chosen by the firm).
  • Returns to scale vary between industries, but typically a firm will have increasing returns to scale at low levels of production, decreasing returns to scale at high levels of production, and constant returns to scale at some point in the middle .
  • The final stage, diminishing returns to scale (DRS) refers to production for which the average costs of output increase as the level of production increases.
  • This graph shows that as the output (production) increases, long run average total cost curve decreases in economies of scale, constant in constant returns to scale, and increases in diseconomies of scale.
  • Identify the three types of returns to scale and describe how they occur

• Macroeconomics

  • Macroeconomics is the study of the performance, structure, behavior and decision-making of an economy as a whole.
  • Macroeconomics is the study of the performance, structure, behavior and decision-making of an economy as a whole .
  • Macroeconomists focus on the national, regional, and global scales.
  • Sustainability occurs when an economy achieves a rate of growth which allows an increase in living standards without undue structural and environmental difficulties.
  • Macroeconomics studies the performance of national or global economies and the interaction of certain entities at the these level.

• Key Differences

  • Microeconomics focuses on individual markets, while macroeconomics focuses on whole economies.
  • The main difference between microeconomics and macroeconomics is scale.
  • Macroeconomics is the study of economies on the national, regional or global scale.
  • While macroeconomists study the economy as a whole, microeconomists are concerned with specific firms or industries.
  • Adam Smith's book, Wealth of Nations, was the basis of both microeconomic and macroeconomic study.

• Defining and Measuring Income Inequality

  • As a result, a wide array of income inequality scales and metrics have been generated in order to identify challenges.
  • Gini Index: One of the most commonly used income inequality metric is the Gini Index, which uses a straightforward 0-1 scale to illustrate deviance from perfect equality of income.
  • A 1 on this scale is essentially socialism, or the perfect distribution of capital/goods.
  • The share of the overall economy occupied by these two groups demonstrates substantial variance from economy to economy, and serves as a strong method to identify how drastic the inequity is.
  • In a perfectly equal economy this would equate to income levels, and the deviance from this (on a percentile scale) is representative of the inequality in the system.

• The Service Economy

  • This is primarily due to the increasing importance and share of the service sector in the economies of most developed and developing countries.
  • At one end of the scale are huge international corporations operating in such industries as airlines, banking, insurance, telecommunications, and hotels.
  • At the other end of the scale are a vast array of locally owned and operated small businesses, such as restaurants, laundries, optometrists, beauty parlors, and numerous business-to-business services.
  • As their economies continue to develop, the importance of the service sector continues to grow.
  • Define the role of a service economy in developed and developing countries

• Other Scales

  • There are many, many other possible scales that are not part of the major-minor system.
  • A scale may be chosen or constructed by a composer for certain intriguing characteristics, for the types of melodies or harmonies that the scale enables, or just for the interesting or pleasant sound of music created using the scale.
  • For example, one class of scales that intrigues some composers is symmetrical scales.
  • Some scales are loosely based on the music of other cultures, and are used when the composer wants to evoke the music of another place or time.
  • You may want to experiment with some of the many scales possible.

• The Blues Scale

  • Blues scales are closely related to pentatonic scales.
  • (Some versions are pentatonic. ) Rearrange the pentatonic scale in Figure 4.68 above so that it begins on the C, and add an F sharp in between the F and G, and you have a commonly used version of the blues scale.
  • Listen to this blues scale: http://cnx.org/content/m11636/latest/BlueScale.mid.