ECONOMIES OF SCALE -INTERNAL AND EXTERNAL ECONOMIES

• ECONOMIES OF SCALE
  INTERNAL AND EXTERNAL ECONOMIES
• MICRO ECONOMICS
• MEANING OF ECONOMIES
• COST ADVANTAGE THAT ENTERPRISE OBTAIN DUE TO SIZE, OUTPUT OR SCALE OF OPERATION WITH COST PER UNIT OF OUTPUT GENERALLY DECREASING WITH INCREASING SCALE AS FIXED COSTS ARE SPREAD OUT OVER MORE UNITS OF OUTPUT.
• MARSHALL DIVIDED ECONOMIES OF SCALE INTO TWO PARTS:-

1. INTERNAL ECONOMIES
2. EXTERNAL ECONOMIES

• INTERNAL  ECONOMIES
• IT ACCRUE TO INDIVIDUAL FORMS. EACH FIRM CAN AFFECT REDUCTION IN THE COST OF PRODUCTION BY EXPANDING ITS SCALE OF PRODUCTION TO THE OPTIMUM POINT. IT IS ALSO AVAILABLE IN

1. REAL ECONOMIES: LESS RESOURCES ARE NEEDED TO PRODUCE A GIVEN LEVEL OF OUTPUT
2. PECUNIARY ECONOMIES :- ARE COST SAVINGS THAT ARE GENERATED FROM MARKET POWER

• STONIER AND HAGUE ,” THESE ARE THOSE ECONOMIES IN PRODUCTION THOSE CAUSE REDUCTION IN PRODUCTION COSTS WHICH CAN BE CREATED WITH IN THE FIRM ITSELF WHEN OUTPUT INCREASES
• INTERNAL ECONOMIES

1. TECHNOLOGICAL ECONOMIES
2. INVENTORY ECONOMICS
3. MANAGERIAL ECONOMICS
4. FINANCIAL ECONOMICS
5. MARKETING ECONOMICS
6. RISK AND SURVIVAL ECONOMIES

• TECHNOLOGICAL ECONOMIES
• TECHNOLOGICAL ECONOMIES:- ARISE FROM THE USE OF BETTER PLANT,MACHINERY,EQUIPMENT AND TECHNIQUES OF PRODUCTION.

1. ECONOMIES OF SUPERIOR TECHNIQUES: A LARGE SIZED FIRM IS BETTER PLACED IN COMPARISON TO A SMALL FIRM AS REGARDS TO USE OF THE SOPHISTICATED AND COSTLY MACHINERY. INTRODUCTION OF SUPERIOR TECHNIQUES INCREASES THE AGGREGATE OUTPUT AND REDUCES THE COST OF PRODUCTION.
2. ECONOMIES OF LINKED PROCESSES: A LARGE SIZE FIRM CAN  HAS THE BENEFIT OF DEVELOPING ITS OWN SOURCE OF RAW MATERIAL,MEANS OF TRANSPORTATION,DISTRIBUTION SYSTEM ETC
3. ECONOMIES OF SPECIALISATION: BENEFIT OF USING DIVISION OF LABOUR AND WILL REDUCE THE COST PER UNIT AND ENHANCE THE EFFICIENCY.
4. ECONOMIES OF THE USE OF BY PRODUCT: - A LARGE FIRM CAN AVOID ALL KINDS OF WASTAGE OF MATERIALS. IT CAN MAKE USE OF WASTE MATERIAL TO PRODUCE OTHER GOODS THAT IS BY PRODUCT, FOR EXAMPLE A SUGAR INDUSTRY CAN INSTALL A STRAW BOARD PLANT TO MAKE USE OF THE SUGAR CANE PULP OR POWER ALCOHOL OUT OF MOLASSES
5. ECONOMIS OF INCREASED DIMENSIONS: A LARGE FIRM MAY HAVE THE BENEFITS OF TECHNICAL ECONOMIES OF INCREASED DIMESNSIONS.

• INVENTORY ECONOMIES :- A LARGE SCALE FIRM CAN ENJOY SEVERAL TYPES OF INTERNAL ECONOMIES AND IT POSSESSES A LARGE STOCK OF RAW MATERIALS AND WHEN THERE IS SHORTAGE OF RAW MATERIALS AND FIRM HAS NO REASON TO WORRY ABOUT
• MANAGERIAL ECONOMIES: - IN SMALL UNIT,THE OWNER AS MANAGER HAS TO LOOK AFTER ALL THE MANAGERIAL FUNCTION. BUT A LARGE FIRM CAN EMPLOY BUSINESS EXECUTIVES OF HIGH SKILLS AND QUALIFICATIONS TO LOOK AFTER
• FINANCIAL ECONOMIES:-ADVANATGE OF MONETARY ECONOMIES WHILE RAISING CAPITAL. THE FIRM CAN RAISE LARGER FINANCIAL RESOURCES

• MARKETING ECONOMIES: A LARGE FIRM MAY ALSO TAKE THE BENEFITS OF BULK PURCHASE OF RAWMATERIALS ON LARGE SCALE. A LARGE SIZED FIRM GETS PRIORIY OVER THE SMALL PRODUCER IN THE PURCHASE OF RAW MATERIALS. BEING A BULK PURCHASER IT GETS REGULAR SUPPLY OF MATEIRALS AT CONCESSIONAL RATES AND CAN ALSO ECONOMISE THE TRANSPORTATION COST,
• ADVERTISEMENT ECONOMIES : A LARGE FIRM CAN SPEND LARGE SUM OF MONEY ON ADVERTISEMENT,PUBLICITY,SHOW ROOMS ETC AND CAN ALSO ENGAGED HIGHLY EXPERT TO LOOK AFTER SALES PROMOTION
• RISK AND SUVIVAL ECONOMIES : PRODUCE VARIETY OF GOODS AND FACES LESS RISK AS COMPRED TO SMALL ORGANIZATION
• EXTERNAL ECONOMIES
• ARE NOT RELATED TO AN INDIVIDUAL FIRM’S OWN COST –REDUCTION EFFORTS
• RATHER THESE ARE COMMON TO ALL THE FIRMS IN AN INDUSTRY OR ALL FIRMS IN AN AREA
• WHEN EVER AN AREA IS DEVELOPED TRANSPORT FACILITIES ARE PROVIDED,ROADS,RAILWAYS ARE BUILT
• COMMERCIAL SERVICES ARE  AVILABLE IN THE FORM OF BANKING,WAREHOUSING,ACCOUNTING,INSURANCE ETC
• SUBSIDIARIES INDUSTRIES ARE ALSO OPENED IN THE NEIGHOURHOOD AND SUPPLY COMPONENTS AND PARTS
• DEFINITION OF EXTERNAL ECONOMIES
• CRIRN CROSS
• EXTERNAL ECONOMIES ARE THOSE WHICH ARE SHARED BY A NUMBER OF FIRMS OR INDUSTRIES WHEN THE SCALE OF PRODCUTION IN ANY INDUSTRY OR GROUP OF INDUSTRY INCREASES.

1. ECONOMIES OF LOCALISATION
2. ECONOMIES OF INFORMATION
3. ECONOMIES OF DISINTEGRATION

• ECONOMIES OF LOCALISATION:-BY LOCALISATION MEAN, CONCENTRATION OF NUMBER OF FIRMS BELONGING TO PARTICULAR INDUSTRY AT PARTICULAR PLACE. CONCENTRATION OF FIRMS, PRODUCING THE SIMILAR PRODUCTS AT A PARTICULAR PLACE MAY BE DUE TO SOME NATURAL ADVANTAGES OR SOME OTHER BENEFITS. LIKE JUTE INDUSTRY IN BENGAL,TEA INDUSTRY IN ASSAM
• ECONOMIES OF INFORMATION:-WHEN THE NUMBER OF FIRMS IN INDUSTRY INCREASES,THEN IT BECOMES POSSIBLE FOR THEM TO HAVE RESEARCH TO GETHER AND LIKE THEY MAY BRING SOME JOURNAL/SOME RESEARCH WHICH WILL COST VERY LESS
• ECONOMIES OF DISINTEGRATION :
• HORIZONTAL DISINTEGRATION :- EVERY FIRM MAKES AN EFFORTS TO SPECIALISE THE PRODUCTION OF SAME VARIETY
• VERTICAL DISINTEGRATION : DIFFERENT FIRMS IN INDUSTRY SPECIALIZES IN DIFFERENT STAGES OF PRODUCTION PROCESS
• DISECONOMIES OF SCALE

1. POINT OF OPTIMUM CAPACITY FOR ALL THE FIRMS AND INDUSTRIES
2. BEYOND THE POINT OF OPTIMUM CAPACITY OF FIRM ATTRACTS DISECONOMIES OF SCALE

• DISECONOMIES OF SCALE :

1. INTERNAL DISECONOMIES
2. EXTERNAL DISECONOMIS

• INTERNAL DISECONOMIES
• INEFICIENT MANAGEMENT :- WHEN A FIRM EXPAND BEYOND A CERTAIN LIMIT,BECOMES DIFFICLUT FOR THE MANAGER TO COORDINATE
• TECHNICAL DIFFICULTIES :-EMERGENCE OF TECHNICAL DIFFICULTIES BEYOND  A POINT
• PRODUCTION DISECONOMIES:-RISE OF COST DUE TO USE OF INEERIOR MATERIALS

• MARKETING DISECONOMIES :-ACCOMPANIED BY SELLING DISECONOMIES
• FINANCIAL DISECONOMIES : AFTER SOME POINT,COST OF DEBT INCREASES
• EXTERNAL DISECONOMIES
• NOT SUFFERED BY SINGLE FIRM BUT BY FIRMS OPERATING IN GIVEN INDUSTRY
• ARISE DUE TO MUCH CONCENTRATION AND LOCALISATION OF INDUSTRIES
• LOCALISATION LEADS TO INCREASED DEMAND FOR TRANSPORT AND TRANSPORT COST RISE AND ALSO RISE FOR RAW MATERIAL AND LABOUR

1. DISECONIMIES OF POLLUTION
2. DISECONOMIES OF STRAINS ON INFRASTRUCTUR
3. DISECONOMIES OF HIGH FACTOR PRICES