Question

Elevators generally break down at random times and for different reasons. Elevator maintenance contractors must have trained service personnel to provide routine and emergency service. Shan On Elevator has 200 service personnel to maintain 1,000 elevators.

a. Suppose that Shan On has received a contract to maintain an additional 1,000 elevators. Do you expect that Shan On will need to double service personnel? Why or why not? b. Does the example in (a) illustrate economies of scale or scope?

c. Escalators and elevators use quite different technology and parts. But many clients operate both escalators and elevators. Are there any economies of scope for a contractor to maintain both escalators and elevators?

Kindly use a graph to illustrte the answer wherever neccesary

on this case study can you identify the main problem and what is the objectives? thank you

Answer 1

a. Answer: No, I don't expect that Shan On will need to double service personnel. If we suppose that elevator breakdowns are independent, thus the average rate of breakdowns will obey the law of huge numbers. Shan would be in a position to predict the number of breakdowns with relatively minimum error when it maintains a larger number of elevators. Thus, does not require increasing the number of service people by the similar proportion as the number of elevators to be maintained.

　

b. Answer: Economies of scale because Shan On Elevator is reducing the average cost (cost per unit) arising from increasing the scale of production for a single product. On contrary economies of scope arises due to lower average cost by producing more types of products.

　

c. Answer: There do not appear to be economies of scope because they does not require to increase the number of service people by the similar proportion as the number of elevators to be maintained