Within the assignment it will contain the fully concept of economies of scale and in order to be clear about the explanation of this topic, the example of an industry and company will be involved.
The economies of scale are the key advantage for the business that able to grow. The economies of scale are the cost advantage that the business can exploit when the productive capacity and the range of capacities are enhanced; the average cost will be debased. Economies of scale mean the workers and managers organising jobs efficiently. In order to realise this purpose they need to be involved the following sources including purchasing, managerial, financial, marketing and technological (Sloman, J., & Garratt, D., (2010)).
For satisfying the demand on a larger scale, firms should be purchased a considerable of raw materials or products for resale in larger quantities.
In accordance of Tesco financial report, ‘’they are using the size of the Tesco business to benefit their customers by lowering prices, improving quality, and sourcing new and different products from the best suppliers around the world’’ (Tesco plc, (2012)).
The transport costs per unit will be diminished and even then enable to rescind an agreement of wholesalers due to the firms purchasing directly from producers. Furthermore, the firm needs to be measure some specific demands about services, quality of products, specification or other kind of unusual conditions within the market(Sloman, J., & Garratt, D., (2010)), (Husan,R., (1997).Therefore, they might be purchasing plentiful quantities to operate their needs.
Larger businesses must be keeping the workers’ job in uncomplicated and repetition way in order to enforce the elaborate production processes (Sloman, J., & Garratt, D., (2010)), Any types of training can be excluded and with the highly efficient workers can produce more output in the same time as they have been distributed their particular job in each position by the manger based on their specific skills they possess therefore they do not need to switching from one operation to another (Sloman, J., & Garratt, D., (2010)).
For instance, in the air craft and machine tool industries, manufactures are conscious of decreasing in average costs due to erudition(Augustus, M. K., & Kendrick, J. H.,(1993)). The average cost per unit of new machine tools are likely to descend by 20 percent corresponding with the duplication of output is piled up, due to the superiors have improved the efficiency through learning (Edwin, M.,(1998).Thus learning is an important factor arise economies of scale according to the industry, therefore in such a case, With a Specialisation and division of labour can reduce an average costs and retail prices to reasonable levels(Edwin, M.,(1998).
The marketing economies of scale can benefit a larger firm when they are existed negotiation power (Sloman, J., & Garratt, D., (2010). Negotiation power is observed or proper power that influences the outcomes of negotiation. If this type of power existed within the market, a large firm can extend its advertising and marketing budget over a large output; moreover, a large firm can be purchased qualities of inputs at negotiated discounted prices (Sloman, J., & Garratt, D., (2010)
Specifically the majority of food retailers have negotiation power when purchasing supplies from farmers and other suppliers due to the consideration of seasonal factors, inflation factors and so on. Also the ability of the electricity generators will negotiate lower prices with the oil and gas companies (J.Sainsbury plc, (2012)&(Tesco plc, (2012)& (Husan,R., (1997).
The financial economies of scale benefit a firm to expand as in general, larger firms may mostly having an acceptable credit rating on overdrafts and loans than smaller firms. A larger firms bided on the stock exchange market can normally earn fresh money in inexpensive way through the issue of shares Sloman, J.,