Question

For the discussion in module 3, respond to the following discussion prompt:

Select one industry of your choice and discuss the economies and diseconomies of scale in this industry

In order to answer this, you can take the help of the internet, or any other source you wish.

Instructions:

In order to post in this forum, click on the forum, and create a thread to type in your response. You will not be able to view other's posts until you create a thread.

This forum carries a total of 100 points. 80 for creating your own thread and 20 for your response to other's posts. Please refer to the syllabus for details.

Answer 1

Economies of scale may be described as the cost advantages gained by an industry when its production become more large and efficient. Industries can attain economies of scale by increasing its volume of production of goods and services.

As volume of production of goods and services increases, that minimises per unit cost of production. This phenomena is simply described as economies of scale.

The case of Ford motor company is one of the best example for economies of scale. When Ford started mass vehicle production with its model T vehicles, Ford can built assembly lines that helped Ford to produce cars even more faster which leads to big sales with minimum production costs.

Diseconomies of scale may be described as the cost disadvantages faced by the industry when industry increases the production of goods and services.

Here opposite of economies of scale happens, that is, cost increases as production increases. This might be because of several reasons like technological issues, organisational issues, managerial issues, inefficiency of the management etc.

The case of Hindustan machine tools HMT in India is a better example of diseconomies of scale.

Hindustan machine tools, HMT was a well organised firm located in a small state called Kerala in India established in producing  watches.

It started its operation in the year 1961 became one of the leading watch manufacturer of the region during the next three decades. HMT started to expand its production with high confidence achieved by the industry from its popularity.

What happened then is the production cost of producing watches are increased as a result of expanded production.

Major reason behind this might be inefficient management. As industry grown fast, annual turnover increased, trade unions begins to bar gain more, and there arised so many political interests as well inside the industry.

As a result a kind of inefficiency began to operate in the management of the industry. This inefficiency of the management lead the industry into increased production cost and diseconomies of scale started to operate in HMT.