Question

General Motors, Toyota, Ford and Honda acquire batteries, engines , brake systems and other key inputs from firms that specialize in producing those inputs efficiently thereby reducing the average cost of the automobile production . In case of coffee however the land for producing is widely available so the per unit cost remains the same as the volume of coffee produced grows. With clear diagrams explain the concept of returns to scale from the above example.

Answer 1

Economies of scale is comparatively simpler concept. It acts as a key factor on the base of manufacturers making cars.the basic principle states that large companies has the ability of reducing the cost of every individual unit which is produced by distributing the cost over a large output. The flexible manufacturing of the automobile industry do not accurately redefine the technology of production in state define a method adopted for its full utilisation. Economies in scale is a significant factor for different cost advantages in expansion of this industry.price includes the retail tax as in the profit margins of the dealers. Cars very in dimensions also in the number of production. Changes in design and size make some cars heavier. Also some cars have wait saving cost materials. Accordingly prophet variations may face alterations. High material cost indicate and increased cost of production. There is hai competition where average revenue is equal to average cost.Long run cost curve reveals the economics to scale keeping as a function that technological changes remain constant. Coffee industry face and intensive competition.the economic activity of coffee comprise about 1.6 % of the GDP of US.coffee industry is witnessing a significant growth and about 5.5 % of annual growth rate specially in the developed nation. The coffee market in the world are mainly dominated by 4 main multidimensional corporations.About 90% of the coffee production of the world occurs in the developing countries. Consumption mainly takes place in the industrial nation. Coffee top 3 producers include Brazil veitnam and Columbia.