Describe and provide local examples of economies and diseconomies of scale while explaining possible reasons for...

Describe and provide local examples of economies and diseconomies of scale while explaining possible reasons for both situations to occur.

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Expert Solution

Economics of scale: When the total output of the firm increase than the cost per unit of production of that will be reduced.

Ex:When the business is expanding the fixed costs will become nil as they will try to own the equipment rather than renting it which reduces the cost of production per unit. Hence here total output is increasing but the cost of production per unit is reduced.

MC Donald's

Diseconomics of scale: When the total output of firm increases than the cost per unit of the production will also increase.

Ex: Large companies when raise to a point where economics of sale will not work as when the labour increases which will lead to increase in cost of production.

When the company is expanding than economics of scale will be there as during that expansionary stage the firm will increase the output but reduce the cost production per unit.

When the company reaches the stage where economics of scale will no longer can effect than the company will have Diseconomics of scale due to communicate gap between employees and employers, due to increase in labour etc.

Rahul Sunny answered 1 year ago

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