Answer to Question #195698 in Management for Nida

Question

Give three explanations each with examples (preferably from the South Asian markets) of the causes of economies and diseconomies of scale. Discuss what industries are likely to experience economies of scale for a longer time period and which are not.

Answer 1

Causes of economies of scale

1. Purchasing- firms achieve lower average costs by buying the inputs required for the production process in bulk or from special wholesalers.
2. Managerial - firms may low cost by improving the management structure within the firm. For Example, Una Brands can hire better skilled or more experienced managers.
3. Technological- New technology changes the production process for the better. For example, Alice Labs is an omnichannel conversational AI-based SAAS platform to Boost Sales, Automate Support and Reduce Cost!

Causes of diseconomies of scale

1. Difficulties in managing a larger workforce leading to organizational diseconomies of scale. For example, Una Brands is a $40M company in South Asia, it can suffer diseconomies of scale if there is no effective communication.
2. Technology- physical limits on handling and combining inputs and goods in process. These can include overcrowding and mismatches between the feasible scale or speed of different inputs and processes.
3. External environment- These are constraints of economic resources or other constraints imposed on a firm or industry by the external environment within which it operates.

The Agriculture processing industry enjoys economies of scale for a long period of time. The notable exception is Singapore, where the manufacture of a variety of products, headed by electrical and electronic, and transport equipment, is dominant. While the Quinary sector does not.