Question

Do not take Amazon please

The textbook authors explain that firms often face increasing costs as they increase production. However, some firms can achieve economies of scale, a situation where firms expand output with decreasing average total costs (Froeb, 2018). _______________________________________ 1. Identify a specific firm. Do not use a firm you already selected for a previous discussion assignment. Briefly describe the goods and/or services that are produced by the firm you selected. 2. Describe three strategies (no more and no less) that managers within this firm could (or actually do use) to achieve economies of scale in the operation of their firm. Be specific in your answer. 3. Application Question: Applying what you have learned, if you were the manager of a large firm that is unable to achieve economies of scale, would you recommend that the firm should cease operations and close? Why or why not?

Answer 1

ans1=McDonalds Corp-fast food chain

ans 2=

In addition to the division of labor & specialization, within any firm, there are different inputs which may result in the production of a good / service.

Lower input expenses-

When a firm purchases inputs in bulk—for instance, the potatoes utilized to make French fries at McDonald's Corp.—it can avail volume discounts.

Specialized inputs-

As the production scale of a firm increases, it can employ the utilization of specialized labor & machinery resulting in greater efficacy. This is because employees would be better qualified for a particular job—for instance, somebody who only makes French fries—& would no longer be spending additional time learning to do work not within his specialization (making hamburgers / taking a client's order).

Techniques & organizational inputs-

With a larger production scale, a firm may also apply better organizational competencies to its resources, a clear chain of command, whilst enhancing its techniques for manufacturing & distribution.

For instance, behind the counter staff at the fast food restaurant may be organized according to those taking the in-house orders & those serving the drive-thru consumers.

ans 3=

The key to comprehending economies of scale & diseconomies of scale is that the sources differ. A firm needs to determine the net impact of its decisions affecting its efficacy, & not only focus on one particular source.

Whilst a decision to increase its scale of operations may outcome in diminishing the average cost of inputs (volume discounts), it could correspondingly give rise to diseconomies of scale if its subsequently broadened distribution network is inefficient as not enough transportation trucks were invested in as well.

So, while making a strategic decision of expansion, firms need to balance the impacts of different sources of economies & diseconomies of scale, so that the average cost of all the decisions made is lesser, resulting in higher efficacy all around