Any company planning its long-term work should not only combine different factors of production, but also to change their numbers correctly applying economies of scale.As known to all, changes in various factors in the same proportion leads to very different results.By definition, the economies of scale in the economy is the ratio between the change in the volume of production output and costs of production factors.
mathematical property of the production function allows us to describe the relationship of volume and effectiveness of resources.This concept responds to the question of what happens with output at a time when resources (factors) are equally increased proportionally.As economies of scale mean that these factors are variable quantities, the whole concept of this index is rather long.
The options for this parameter, depending on the resulting figure:
- permanent or unchanging effect that changes the volume of the issue in the same proportions as the cost factor;
- positive or growing - if it increases the volume of the issue is much more than the cost of production factors;
- negative or reducing - if it increases the volume of the issue in a much smaller proportion than the cost factor.
Economies of scale of production is determined by the following phenomena:
- lack of action of the law of diminishing returns.All the factors are in this variable.
- insufficient intensity use of certain factors.In this case, assumed to be constant ratio.
Keeping constant factor ratio at any level of production and production output allows you to clearly trace the manifestation of the expected economies of scale.To do this, you must analyze your card isoquants.In that case, when larger volumes of the same proportion factors isoquants convergence occurs, this indicates a positive effect on the scale;but if they are separated, there is a negative effect;if they maintain their pace, then get a permanent effect.In fact, there are no laws regulating the orientation of the action of this indicator, and the definition of its nature can only be obtained empirically.
There are certain factors that favor the growth of the impact of economies of scale:
- productivity growth (with its deep division);
- size factor (the release of more powerful products while preserving existing technology);
- use of the latest technologies and modern equipment;
- maximum loading of existing facilities;
- use of expertise in management and a skilled workforce.
There are factors that counteract the growth of this indicator:
- difficulties in coordination and management;
- increase in the accident rate and the emergence of bottlenecks;
- increase in distribution costs and transport costs;
- increase in administrative costs.
duration and nature of the economies of scale are always determined by the specifics and peculiarities of technology, so for a specific industry is characterized by a certain optimum output.The main issue in the organization of some kind of business is a question of what kind of businesses will become more efficient: small or large.The concept of the value of the scale of the enterprise is determined by the implementation of the relevant market.Growing economies of scale often occurs when there are more opportunities for the largest enterprises.A typical example of this is the production of the aviation industry.
