Question

A golf course manager is happy to see their business has been growing over a recent year. At the same time, he worries about the scale of their course could be too big to manage. What kinds of Economies of Scale and Diseconomies of Scale would occur in a golf course?

Answer 1

Economies of scale happens when the long term costs of a company decreases with the increase in demand for products and services which the company offers.

In this case, of a golf course expanding, with more area available the demand side for the same can be met. Expansion would offer more land meaning more people have access to the golf club and would not have to wait.

Some would even be looking to pay a higher price for this. This reduces the overall impact on costs while increasing the profits for the golf course respectively.

The per unit cost then of managing the golf course would decrease substantially while increasing the profits at the same time.

On the other hand, Diseconomies of scale is what bothers such industries more. When expansion strategies are not reflective on the demand pattern, this means that the firm has outgrown the demand.

This results in a problem for the golf course meaning that while expansion led to the rise in costs such as administrative costs, compliance costs and cost of maintenance the firm was unable to manage its operations in a manner that would increase the demand. As a result of this the overall costs would increase per unit and the company would make huge losses.

Please feel free to ask your doubts in the comments section.