News 5: Fat profits: how the food industry cashed in on obesity?
News 6: Sony considering selloff of Vaio PC business as sales dwindle
News 7: Panasonic 'to quit' loss-making plasma TV business
News 8: China Mobile Probes Loss-Making Exit From Hong Kong TV (1)
News 9: Acer Posts Record Loss After Making Further Write Offs
News 10: Nintendo Mulls New Business Model After Forecasting Loss
News 6: Sony considering selloff of Vaio PC business as sales dwindle
News 7: Panasonic 'to quit' loss-making plasma TV business
News 8: China Mobile Probes Loss-Making Exit From Hong Kong TV (1)
News 9: Acer Posts Record Loss After Making Further Write Offs
News 10: Nintendo Mulls New Business Model After Forecasting Loss
Grade 8C
__________________________________
Case Studies Based Question
Please read above mentioned news articles and use information in preparing your essay for the given question. I will appreciate if you use other referenced information in support of your answer.
Explain various reasons for the exorbitant level of profits and losses with some of the firms in this world. Discuss how firm can benefit with Theories of Economics in improving profit margins or containing the losses.
Last date for Submission:
February 16th 2014
Please Write Your Response in 500 Words
Note:
1. Write with references.
2. Present market examples in support of your reasons.
3. Marks allocation for this article is 20
Rubrics for Marks.
A. Theoretical Explanation 5 Marks
B. References. 5 Marks [Use Harvard referencing style]
C. Use of Key words. 5 Marks
D. Examples from various Markets 5 Marks
Economics of scale can increase a company's profit by increasing the number of output that a company produce. Because when the company's output is going to increase, the cost of making that product is going to decrease or we can say that number of output with the cost is inversely proportional. There are two types of economics of scale: first is economics of scale and the second one is diseconomics of scale. Diseconomics of scale is a force that cause or make the big companies and the goverment to produce services and goods with a price that is already increased. There are two types of growth of firms : first is internal and the second one is external. If internal is when a company increase the size of the company, which can be controlled by the firm it self. for example: hiring more workers, increasing the capital, etc. If external is when a company merge or acquisition with another company.
ReplyDeleteThe advantages for large scale of production, first is use of machine, all of the large scale production use big machines. They all use machine, so that they can produce it faster, cleaner, and more efficient. Second advantage is that it can produce more goods, because they have more specialised workers, they have more large machines that is advanced and efficient. third advantage is low cost of production. Because the machines are more efficient, so they take less electricity or energy, water, etc. Forthadvantage is cheap and easy loan. The bigger company are much more trusted by the bank, because they have more assets, revenue, and capital. So they can pay it much easier and faster, even if they cannot pay ,the bank can just take the assets. the fifth advantage is advertisement and salesmanship. Because the company have much cash, so they can rent or make much more advertisement to make, advertisement is needed so that the customer can know about your company. Because of more cash, the company can hire more salesmanship. The sixth advantage is research. Bigger scale company have more money that spent on hiring more specialised workers or scientist that will do the reasearch faster than the other companies. If you can research faster, the customer ofcourse will buy from you because there are no other competitor that has already found it. The seventh advantage is economy of buying. A large scale production will need the raw materials that going to be processed. When they buy the raw materials, they will get much lower price than just buying retail or only one, because they will buy much of them.
The first disadvantage is evil of factory system. The large scale production is accompanied by all the evils of the factory system like : population, bad morals, density , and over crowding. When there is someone that smoke or drink alcohol or using drugs or etc. It will spread much faster and easier. Thesecond advantage is less supervision. A large scale company have thousands of workers, because of that the supervision is very little, because if there is only less supervisor, it will need very much time, if much supervisor, it will need much monwy to pay them. The third is danger of over production. Every company cant predict their customer's demand , so they can produce much more than it. So the the price will fall and depression sets in.
The conclusion is that there are more advantage from large scale production. Reference:http://www.yourarticlelibrary.com/economics/the-advantages-and-disadvantages-of-large-scale-production/10901/ http://smallseotools.com/plagiarism-checker/: 100%
B good work.
DeleteAt many places you are repeating the sentences. In essays, we need to use key words with out definitions. I suggest you to do proof reading before posting your articles here.
A way to increase firm’s size is by increasing the scale of production. Increasing the scale of production will reduce the cost of production, which will increase profit. This is known as the term economies of scale. Economies of scale bring benefit as it brings profit. But increasing the scale of production doesn’t always create profit. This is known as the term diseconomies of scale.
ReplyDeleteThere are 2 types of economies of scale: Internal economies of scale and external economies of scale. The type of growth can be called internal economies of scale is because the increase will only affect on the individual’s firm. While external economies of scale will affect the industry as a whole. There are many kinds of internal economies of scale.
Buying the raw materials for production in a larger quantity from producers will be beneficial because the price is less, and the transport cost could be lower per unit. An example of a company who applied this type of economies of scale is Wal-Mart Inc. Wal-Mart Inc. is the largest grocery supply store in the US. When they buy the product, they’ll buy a very large quantity so that the cost will be reduced and so that consumers can buy in a lower price.
When increasing the scale of production, the firm will be larger. A larger firm will be easier to find skilled workers with different functions for the company. An example of a large firm in the pc and mobile phone industry is Apple Inc. It is easier for Apple to find skilled workers to work as a manager, CEO, etc. CEO’s such as Tim Cook will be easier to accept the replacement of Apple’s CEO because Apple is a large company which will earn him fame and higher salary.
A larger firm’s risk of failing will be lower compared to smaller firm’s risk of failing. A larger firm may have greater resilience in the case of a downturn in its market because of larger reserves and greater scope to make cutbacks.
Diseconomies of scale may happen when a firm becomes larger. When a firm grows bigger, it isn’t always better. In a larger firm, management will be more complicated in the firm because there are more things to be organized in a larger firm than in a smaller firm. New layers of management in the firm might also be needed which might also increase the cost needed for the firm. That is one of the factors why some firms wanted to remain small.
Communication is harder in a larger firm because there are more workers in a larger firm than in a smaller firm. A miscommunication in the company may lead to a fall in the business. In a larger firm, employees can feel that they’re not really appreciated and also valued as individuals. This may discourage employees.
Diseconomies of scale do not always have to happen. It is depending on the effective management, which can minimize the bad effects and increase profit and future for the business.
My conclusion is that economies of scale can bring advantages and also disadvantages to the firm, although it mostly brings advantages.
Kevin 8C
Reference:
http://www.tutor2u.net/business/gcse/production_economies_of_scale.htm
88% Originality
B good work,
DeleteI appreciate you used many key terms in explanation. We need not to define key words every time we use, so use then as usual like other words. Its highly recommended to proof read our articles before posting.
The first thing to know is that when we increase the scale of production, it doesnt always give us risks. we can sometimes lower our average cost (fixed cost+vqriable cost) when we increase the products produced. The first time i learned about this, i was kinda confused. I meant, how do you increase the production when you lower the cost?
ReplyDeleteThe researches i made from google and book had therefore help me to understand more about this. So basically, lowering the average cost is actually one of the advantages of increasing the scale of production. There are still some other advantages though. Let us concentrate first on how can we lower the average cost. One of the ways of lowering the cost is to have own transportation than having to use JNE or whatever delivery. By not having our own, we have to pay another additional cost for the transport. So transportation is important.
A firm size can also increase by the increase of scale of production. A larger firm can receive more profit not only because of their production, but also because of their popularity.
Another advantage of increasing the scale oof production is that we can increase the skill of each workers. Soon or later, they and us can be able to produce another type(s) of product.
Increasing scale of production can actually help us to be risk bearing too. By being brave again and again, by passing through different situations, we can actually learn so many things. We learn from our faults. We can predict what to do, what are going to happen if we do this and that. We can anticipate before we do something, and we can bear and fight risks by not being afraid.
Besides, there are still disadvantages before we succeed. Before starting everything of course we need to have enough budgets for the machines. This means we need to lose more money for a while. This doesnt really matter because we can still borrow money from bank. But they still need to be good enough to borrow money with low interests. Other thing is that when we first produce that much, we have to accept it if theres no many customers. Because its just a beginning. Failure is always a beginning off succession.
Over all the advantages and disadvantages, i still consider that increasing the scale of production is a good thing to do. At the end, the profits we receive will be much higher than before. Even if at first there are still some uncomfortable circumstances.
reference: book
http://smallseotools.com/plagiarism-checker/: 100%
http://www.plagiarisma.com/: 96%
B well done,
DeleteYou have put in much efforts in completing your task. Before posting dont forget to proof read for spellings, gramatical corrections and use of appropriate referencing.
Some firms in this world are recently having an exorbitant level of profit and losses due to various reasons caused most by other countries. There are several various reasons concerning their profit and losses. A few paragraphs below will be explaining further about those firms.
ReplyDeleteThe first example would be Indonesia that has pushed through a hotly-contested ban on raw minerals exports. The purpose of the ban is to boost local mineral processing in order to keep a greater share of mining profits in Indonesia. However, this could lead to some problems relating to the possibility of billions of dollars loss in export revenue in Indonesia. Many related firms might therefore be affected by the ban.
Another example is the development of coal mines in East Kalimantan is having a huge impact on local and indigenous populations, destroying the forest and displacing communities. Deforestation might affect the natural environment and the people living nearby. They will not be happy by these negative externalities. Complains from citizen might therefore be observed from this unpleasant activity.
Next firm is Honda Motor in India which concluded that the increase in expense is due to increase in new manpower to support their expansion. Increase in advertisement and brand expenses. Also an increase in material cost due to increase in input prices of steel, aluminum, plastics etc. In addition, I would say that there are internal and external factors which impact a company’s performance and recent currency weakening that have been included as the reasons at play. Take for example Honda, which is one of the firm sacrificing its profits in order to build scale.
Theories of economics state that average or unit costs can be reduced as a firm grows in scale. Economies of scale is divided into internal and external. Internal economies of scale will reduce the average cost of production as the scale of production is expanded in a firm. However, many firms can experience problems if they try to expand their size and scale of production too much. As a result of this, productivity may fall and average cost will therefore rise. These problems are caused by diseconomies of scale.
The benefits from internal economies of scale that firms can enjoy are financial economies of scale which shows that the bigger the size of a firm, the less the borrowing cost. Managenial economies of scale shows that the bigger the size of a firm, there will be more efficient people in the business and those people will therefore receive higher salary. Risk-bearing economies of scale shows that wider range of products will reduce risks in a business. Marketing economies of scale means more on advertising. Technical economies of scale allows better utilization, that are related to machines also research and development such as pharmacies company.
External economies of scale include access to trained staff such as universities and technical institutions. There are also ancillary firms which are smaller firms that produce small and specified equipments that support itself and the larger firms. Joint marketing benefits allow government to help increase sales of smaller business in the market. Infrastructural benefit like roads, electricity, water which are provided by the government as their responsibility.
My conclusion is that firms can benefit from the theories of economics in improving their profit margins or perhaps have loss due to diseconomies of scale if they try to expand their scale of production too much. Those benefits in internal economies of scale could be processed by firms in order to increase profit because they are factors located inside the firm.
Sources:
http://www.bbc.co.uk/news/business-25708346
http://www.theguardian.com/global-development/2013/oct/30/coal-mining-uk-profits-indonesia
http://articles.economictimes.indiatimes.com/2013-12-03/news/44710420_1_honda-cars-india-yuga-hmsi
95% originality
B good work,
DeleteUsed many evidences for explanation. Need to focus more on topic. You are writing in text book way.
I recommend to to proof reading and appropriate refrencing.
Economies of scale is one of the advantages for firms to increase in size. Economies of scale is the increase in large scale of production and the reduce in average cost per unit of a product. In other words, economies of scale may be defined as the increase in the production of goods and services and the decrease in the average cost per unit. A decision that can effectively control by the firm is called internal economies of scale. External economies of scale are the decisions that happen outside of the company that results in reduction of cost and increase in productivity.
ReplyDeleteInternal benefits of economies of scale are financial economies of scale which means when the size of firm increase, firms may have lower borrowing cost (interest). Managerial economies of scale is the benefit for firms to have easier access to hire skilled workers. Risk bearing economies of scale, marketing economies of scale is the benefit of easy access to marketing (advertisement) for large firms. And the last benefit is technical economies of scale which is firms have easier access to research & development, and better machines.
Firms receive advantages when they increase in size. One of the reasons is because the firms may receive discounts as they are buying goods in bulk. Fixed cost can be spread to new or developing products over a bigger level of output. Fixed cost may also be spread among management or the expenses of the firms
Firms may also receive advantages that the firm could not control directly. Such as, suppliers of the goods to all these firms can do more efficiently. Infrastructure such as roads and telecommunications are easier to get. Joint marketing benefit. Ancillary firms which is the support from small firms to produce goods.
Just like there are economies of scale, diseconomies of scale may also occur. As business grows, the growth may not always be beneficial. Diseconomies of scale may happen if firms grow too big. Diseconomies of scale may occur when there is an increase in large scale of production as well as the increase in loss that is caused by the increase in average cost per unit. Diseconomies of scale are of 2 types; internal and external diseconomies of scale.
As a result of diseconomies of scale, employees working may have last of motivation to work. When employees' motivation falls, employees' productivity may also fall, which may cause inefficiencies of the products. Managerial diseconomies of scale, limited raw materials, more expenditure on training employees, and labour diseconomies.
References
1.http://www.investopedia.com/articles/03/012703.asp
2.http://www.bbc.co.uk/schools/gcsebitesize/business/production/productioncostsrev1.shtml
3.Economics textbook and notebook
100% originality based on plagiarisma.net
Charlotte 8C
B good work charllote,
DeleteYou have put in many efforts to complete the task.
Need to be more focused on the question.
There are ways to increase the size of the firms, just one that I will discuss, it is by the economies of scale. Economies of scale means increasing the production and decreasing the cost per unit that will make the profit margins to become wider.
ReplyDeleteThere are also various reasons why there is the exorbitant level of profit and losses in some firms in the world. I'm going to discuss both how the firms can grow through the economies of scale and about the exorbitant level in some firms in this world.
Through the theory of economics which is the economies of scale, firms can improve the profit margins and also controlling the losses. There are types of economies of scale, internal and external economies of scale. These are the five types of economies of scale: First is the purchasing economies, large firms will usually buy the components they need in bulk, so the seller of the components will give discount because the large firms buy in bulks, so through this, they can reduce the average cost and increase the production. Second is the marketing economies, large firms will use their own car to transport goods, so they don't have to pay the profit margin of another supplier. The third one is financial economies, if larger firms will borrow money from lender or banks, they will get lower interest rates rather than the smaller firms because the lender or banks trust the large firms more than they do to the smaller firms. Fourth is the technical economies, large firms often have the money to invest in capitals and also hires highly skilled workers but not for small firms. Fifth is the risk-bearing economies, firms can reduce risk because they have more customers that sell into markets at home and overseas and offer a larger range of products than a smaller business.
The reason why there is the exorbitant level of profits and losses in the firms in the world is that because all firms wants profit as high as possible but have the average cost or cost per unit to be as low as possible. But sometimes the problem is that when they increase the product's price, only some people wants to buy, so they make a loss, than they decrease the price of the product and many people wants to buy, so they will get profit and they keep on changing the prices, so the firms can get unreasonably high profits or losses.
So my conclusions is that the large firms will have more advantages in the economies of scale while the small firms don't and there are reasons for the exorbitant level of profits and losses in some firms in some countries.
References: -Economics Book
- Corner Notebook
92% originality
B good work,
DeleteYou eplained nicely how some firms make huge profits, but you have not mentioned about heavy lossesto some of the firm. Conclusion also seems to be weak.
The firm may and may not benefit from the growth of the firm. Businesses can expand if they borrow money from the bank or sell their shares. The main cause of this expansion is economies of scale. Economies of scale are the advantages, in form of lower long run average costs (LRAC), of production on larger scale. When economies and entrepreneurs talk about economies of scale, they are usually referring to internal economies of scale. Internal economies of scale are the advantages gained by an individual firm increasing its size. There are 2 types of economies of scale : internal economies of scale and external economies of scale. Diseconomies of scale are essentially the disadvantages of 'being too large'. A firm that increases its scale of operation to a point where it encounters rising long run average cost is said to be experiencing internal diseconomies of scale. External diseconomies of scale arise from an industry being too large, causing the firms within the industry to accrue long run average costs. As a firm changes its scale of operation, its average costs are likely to change. In very capital intensive industries, such as oil refining, long run average costs may fall over a considerable range of output. In other cases, average costs may fall relatively quickly to their lowest point and the remain constant over a large range of output. So there are advantages and disadvantages of the expansion of the business. The advantages are: they can gain profits because they produce more numbers of products, although from economies of scale we decrease the price but high profits can still be gained. The disadvantages of a business of growing to large are: difficulties controlling the firm, communication problems and poor industrial relations. Other advantages of economies of scale are: the development of a skilled labour force, a good reputation, specialist of raw materials and capital goods, specialist services, specialist markets and improved infrastructure. Profits and loses depends on the management of the business and the size of the business. So the conclusion is that the business can gain more profit when increasing the size of the business but can also get loses if the business encounters diseconomies of scale.
ReplyDeleteReferences:
-Economics book
-Economics corner notebook
-http://plagiarisma.net/
-originality 85%
b Well done,
DeleteYou have put in lot of efforts to complete this task.
I suggest you to write in small paragraphs. Try to proof read before posting on this blog.
Its important to write in accordance to the topic.
The theory of economies of scale is a simple idea of how the average cost of a firm reduces attributable to the increase of its scale of production. Economies of scale occur as the quantity of products produced and per-unit costs are inversely proportional. A distinction can be made between internal (arises from within the company) and external (arises from outside of the company) economies of scale.
ReplyDeleteLarge firms are often stated to be more efficient than smaller ones as it experiences economies of scale, but firms can become too large it ends up experiencing diseconomies of scale. Many things are a result of economies of scale, such as specialization, technical, and marketing economies of scale.
Specialization is the term used to describe how an individual or organization focuses on one specific resource rather than more resources and becomes superb at it. Bigger firms have the ability to breakdown the large task of production into smaller and separated tasks, hiring the resources in a more efficient way. The efficiency is found in the specialized equipment and well-trained workers. By doing this, the company’s workforce will be able to boost its productivity.
Technical economies are the cost savings a firm makes, as it grows larger. It is believed to originate from the increased use of machinery and other mechanical processes. Large-scale businesses are able to invest in a more costly and specialized machinery, making things more efficient. However, when a small firm employs such specialized machinery, it might not be as efficient.
Marketing economies of scale refers to the lower unit cost of advertising enjoyed by large firms, which is unavailable to smaller firms. This is acquired by large firms as the advertisement or promotion costs are divided over a large number of outputs. A larger firm with higher level of output would not mind spending more on its marketing, because it will still be reasonable in accordance to the level of its output or production scale.
A business, however, is capable of expanding to the extent it reaches diseconomies of scale. This is the opposite concept of economies of scale. Rather than reducing its average costs, a business’ average cost increases with the increase in production scale. Diseconomies of scale may be caused by poor communications, loss of direction, co-ordination problems, and lack of motivation.
As a business expands, it becomes more difficult to properly communicate and give orders to different departments. With the communication line becoming a big problem already, it is even harder to ensure that all workers are well-motivated and working to reach the firm’s goals. When the company is loss of direction, productivity level falls and costs increases. The large and expanding firms may eventually experience inefficiency and even loss at times.
To conclude this, I would have to say that a company needs to focus on all of the factors that have or will be affecting whether or not economies of scale will be achieved when a business expands. Thus, when a firm expands by increasing in its production scale may result in the reduction of average costs, or economies of scale, the costs may eventually rise, leading to diseconomies of scale.
Anabelle – 8C
Originality (based on smallseotools.com): 96%
References:
• http://www.tutor2u.net/business/gcse/production_economies_of_scale.htm
• http://www.bbc.co.uk/schools/gcsebitesize/business/production/productioncostsrev1.shtml
• http://en.wikipedia.org/wiki/Diseconomies_of_scale
• http://www.economicsonline.co.uk/Business_economics/Diseconomies_of_scale.html
A Great work,
DeleteYou have done done marvellous work. Keep it up.
Economics of a scale is the increased on production of goods reduce cost per unit of a product which will make an increase in production and decrease in the average cost, and the larger the scale of production will decrease the cost of the product which also in other words economics of a scale means the cost advantage that arises with increased output of the product, which economics of a scale may arises because of the inverse relationship between the quantity produced per unit fixed cost because the cost are shared over large number of goods, it also may reduce variable cost per unit because of operational efficiencies and synergies.
ReplyDeleteThe theories that most of the time can improve the profit margins are the internaleconomics of a scale which means advantages or arising from within the company. There are 5 types of internal economics of a scale : financial economics of a scale, managerial economics of a scale, marketing economics of a scale, risk bearing economics of a scale, and technical economics of a scale. While the theoriesthat can make a company containing losses is the external economics of a scale which means disadvantages or arising from extraneous factors such as industry size. There are 5 types of external economics of a scale : management diseconomics of a scale, limited raw material, high expenditure, labour diseconomics, and reduce the economics.
The first evidence is Indonesia’s hotly-contested mineral ban takes effectm which in this case, Indonesia has pushed through hotly-contested ban on raw materials export after making the last minute concessions for the country’s 2 biggest miners, they are trying to ear more profit whcih actually canlead to more problems.
The second evidence is UK profits from Indonesia's destructive mining industry which UK takes one of natural resources from Indonesia (Samarinda, East Kalimanntan) which has impact on the country of East Kalimantan itself also for the populations that lives there. UK has do deforestation which may have some negative impact and the impact will be to the villagers nearby.
The last evidence is Honda motorcycle and scooter that honda has an increase in expenses. In conclusion I concluded that theories of economcs of a scale is important for a business in taking decisions, because by thinking of the theories in each dscisions business take, business will be able to know the advantages and disadvantages of what will happen if they take that decision.
Sources :
http://www.investopedia.com/terms/e/economiesofscale.asp
http://articles.economictimes.indiatimes.com/2013-12-03/news/44710420_1_honda-cars-india-yuga-hmsi
http://www.theguardian.com/global-development/2013/oct/30/coal-mining-uk-profits-indonesia
http://www.bbc.co.uk/news/business-25708346
Originality : http://smallseotools.com/plagiarism-checker/ 100 %
B good work Tiffany,
DeleteNeed to write in simple small sentences instead of long complex sentence. Use comma and full stop at appropriate places.
Matthew Jonathan
ReplyDeleteWhat is Economies of scale is about? Economies of scale is the cost advantages that enterprises obtain due to size, output, or scale of operation, with the cost per unit of output usually decreasing with increasing as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost . Economies of scale apply to many organizational and business situations and at different levels, such as a business or manufacturing unit, a plant or an entire firm. For example, a large manufacturing facility would be expected to have a lower cost per unit of output than a smaller facility. Economies of scale also have limits, such as passing the optimum point where costs per additional unit begin to increase. A common limit for low cost per unit weight is saturating the market, thus having to ship product by long distances. Other limits include using energy less efficiently. There are two types of economies of scale, internal ,and external. Internal economies are, as the name says, is done internally by the firm, and is controllable by management. External economies are supported by external factors, such as the industry, geographic location or government. Internal economies result from the size of the company, no matter what industry it's in or market it aims. External economies of scale mean a large company receives treatment from government or external sources simply because of its size. For example, most countries, or cities will lower taxes to attract large companies since they will provide jobs for their local residents. Sometimes ,a company can grow too large that it can actually become a disadvantage. Diseconomies of scale happens when a large company suffer from their size. It might take longer to make decisions, making them less flexible to make choices in the business. How economies of scale can help a business? They can help a business in a large scale mass- producing operation. This can help the firm to achieve higher output, while the variable cost decreases. By economies of scale, we can also have higher sales level, and higher profit returns due to the increased production, with the decreasing variable costs.
References:
http://www.economicsonline.co.uk/Business_economics/Economies_of_scale.html
http://www.mindtools.com/pages/article/newSTR_63.htm
http://www.mindtools.com/pages/article/newSTR_63.htm
Unique Content: 86%
A Great work Matthew,
DeleteYou have used the different key terms to explain the question.
Better if write in smaller separate sentence.
Even when countries and firm have identical climates and factor endowments, they can always find it beneficial to trade. The economically wealthy industrialized countries have become each another’s best customers. The main reason in this situation lies on what is known as the economies of large-scale production.
ReplyDeleteThe companies would increase and go with a larger scale of production. Firstly, economies of scale is defined as the increased production of goods and services that saved costs per unit of product. It is another way on how firms could increase in size and profit. As a firm increases production units and became larger, it will have better chances to reduce costs.
Economies of scale can either be internal or external economies of scale.
An internal economies of scale includes factors of production that can effectively be controlled by the firm only. External econmies of scale, on the other hand, occurs outside of the firm/within an industry.
There are many reasons why firms' unit costs begin to fall when they grow in size (benefits). First, is when large companies often receives discount when buying bulk (purchasing economies). Therefore, producing costs reduce as firms are able to buy bulks they need themselves.
Another reason is because of marketing economies. Large businesses may buy or hire their own vehicles to distribute their goods and services rather than relying on other firms to do so. This way it can reduce costs as they aren't paying the profit margin of any supplier. Large businesses often have more financial resources in investing on specialized machineries and training their workers, and also to do research and development on their products, in which smaller ones couldn't do.
To the extent of external economies of scale, they can benefit in joint marketing benefits (firms co locating together in an area known for the production of high quality products) and shared infrastructure (encourage other firms in other types of industries to invest together such as new power stations, etc), as well as benefitting from the access to skilled workforce and recruiting better ones in their company.
Sometimes a firm can grow on too large in its production scale. Diseconomies can occur. This happens when its production increase but costs increase. Reasons for diseconomies can be caused by the poor management of the firm (as it couldn't control all their structures and strategy, buildings, etc.), shortage to the quantity of materials, high numbers of employed unskilled workers, lack of motivation in workers, and agglomeration diseconomies (too much merging with firms with different stages of production).
Panasonic, a Japanese electronic company, stated that it will stopped producing plasma TV in 2014. Panasonic has made a loss of 754bn yen the last financial year. They have lost sales, along with local companies Sony and Sharp, with rising South Korean companies. Panasonic president,Kazuhiro Tsuga, is focused on abandoning underperforming divisions and said he is concentrating more on higher-margin products in a bid to return his company on making profit.
In conclusion, firms can benefit from the theory of economies in developing their profit and loss margins. Having a large-scale production firm is both beneficial and risk taking at the same time, which can leads to problems leading to diseconomies.
Originality: 100%
References:
http://www.bbc.co.uk/schools/gcsebitesize/business/production/productioncostsrev1.shtml
http://onswipe.investopedia.com/investopedia/#!/entry/what-are-economies-of-scale,5228b03ada27f5d9d017908d
http://www.bbc.co.uk/news/technology-24458805
A Great Work Nathania,
DeleteYou have done the assignment nicely in simple sentences.
I would suggest you to keep focused on the topic as here we need to explain the reasons for abnormal profits and heavy losses to firm with the help of economic theories.
To begin with, theory of economics is a theory where it explains how goods and services are priced as they are, how to calculate the correct price, certain quality and more. Due to the theory of economics, firms are able to find out the certain prices of their product and are able to estimate the profit that they will earn. Some firms tend to receive an exorbitant level of profit, while some might receive losses.
ReplyDeleteMost companies that receive an excellent amount of profit are intelligent. This is because they are able to create products that are high demand toward many customers, or maybe all over the world. Also, it may be because their products are high quality which increases the customer’s satisfaction in buying more. Due to that, more customers demand for their product, and in the end profit increase.
As an advantage of receiving more profit, they are able to increase the size of their firm as well. They might also be able to reach profit maximization due to the exorbitant earning of profit. For example, Nestle Company is highly demanded by many people all over the world. Almost everyone has tasted a product made by Nestle before due to its popularity and big size. Therefore, not only are they a big firm, but they also earn profit maximization.
One of the theories of economics of scale is Financial Economies. It is where banks often lend money to big firms instead of new firms because they are more reliable in paying them back. Banks consider lending money to new firms as a risky thing to do. This is because they might not have the enough amount of money to pay them back, wherein big firms have nothing to worry about because they earn more income and profit compared with new firms.
Another theory is Rick-bearing economies. As you may notice, there are some huge firms who may not only produce one type of product but many types of products. This is because it reduces the risk of losing major consumers. This can be called as diversification. For example, Samsung doesn’t only produce smart phones or androids, but also different types of products such as televisions, fridges, computers and etc.
However, even though some firms that are may receive an advantage of earning higher profit, they may also have some disadvantages. It is a harder way for them to have communication and control. They will also have a narrow span of control due to the many number of workers working in the company. If they have a narrow span of control, then it would take a longer time to report something if a mistake is done.
Also, it might cause non motivated workers. Since they have more workers to handle, some may not be motivated to work with many people or other reasons. Certain disadvantages such as harder way to have communication, control and etc, may lead to diseconomies of scale.
Diseconomies of scale can also happen to certain companies. There are also different types of diseconomies of scale, such as managerial diseconomies where workers are harder to manage, Technical diseconomies and more.
Overall, companies will experience either diseconomies of scale, economies of scale or both. Both can also lead to earning a higher profit or loss. If a company wants to earn higher profit instead loss, they must make a better quality of their product in order for the consumers to have a higher demand.
REFERENCES:
-book
-http://en.wikipedia.org/wiki/Theory_of_value_(economics)
ORIGINALITY: based on http://smallseotools.com/plagiarism-checker/ 100%
B Good work Joan,
DeleteYou have put in lot of effort to complete this task.
I would suggest you to do proof reading before posting your the articles. We need to use the key term to explain the topic where you used your time to explain key terms.
I appreciate you work and it has improved a lot to your previous writing. Keep it up.
There are reasons for losses and gains of company the reasons are as follow:
ReplyDeleteFirstly a firm/company can make lots of profit by doing firstly profit maximization by cutting cost and by increase the price of the product that they are selling like for example mobile phones and laptop companies such as Samsung,Lenovo and etc design their mobile phones and laptops in their homeland country ,for Samsung its south Korea and for Lenovo its Beijing and to cut their production cost they design there but the main production line is in China mainly .So for Lenovo it is producing in its own country this has proven that firms do profit maximization to earn as much profit as they can
Secondly:firms can cut cost of wages by firing people and replacing them with a robot this won't take effect immediately but this will take effect in a long term run because with robots you don't need to pay wages, you don't have to give bonuses, you don't have to give pension funds and you don't need to increase their wages if they do a strike for higher wages .
thirdly:you should apply the theory of economies of scale , this theory stated that by increasing the production of the product that you are using and by this the cost will lower down the percentage of cost going down depends on how many percent are you increasing your product's production.
that is for the profit and now for the losses of a company:
Firstly: if your apply the theory of economics of scale too much it will result in a large loss or even bankruptcy for example: Microsoft's tablet , they have produce up to millions of the product because they are sure that the product will work so they produce lots of it to cut cost and also make profit but, the product wasn't a seller, only a few thousand unit was sold and this actually doesn't have an effect on Microsoft because they are a large company. For them the fail was just a small expense and it won't make the company go bankrupt
Secondly:the firm may over expand this, is caused by the over confidence of a firm owner to expand but it grow to much this have caused the firm's owner to control the firm because the firm was too big to handle and then the owner loses control and the company goes to bankruptcy
As a conclusion of the discussion i concluded that these reasons have caused the profit making or loss making for a firm and yes the teories of economies do support both profit making and loss making for a firm
References:http://en.wikipedia.org/wiki/Lenovo
http://usatoday30.usatoday.com/money/smallbusiness/2010-09-10-growing-your-small-business_N.htm
http://en.wikipedia.org/wiki/Profit_maximization
Originality:98% based on plagiarisma.net
B, Good Work Hans,
DeleteI think you missed out many key terms to use in your essay. I appreciate your work as you focused on the title. Well done Keep it up and use Key (Subject terminology).
Economy of scale is the increase of production with low average cost. Those companies with high profits must have followed the economies of scale. Firms with high losses may or may not have economies of scale. Companies that do follow economies of scale may have high losses due to wrong product mix.
ReplyDeleteBig companies such as Samsung has achieved attraction of consumers and high profits using economies of scale. Samsung aims for bigger market. Samsung has a wide range of products with integration from end to end. It has adapted to all price range within the market. Thereby, Samsung capturing bigger market with economies of scale concludes to making higher profit.
Apple and Samsung take turns in leading the market are currently everyone’s attraction. Apple expects to produce high-quality, premium products. Although Apple’s range of product is sold at high prices, it sales still keeps rising. Consumer’s perception allows this to happen.
Sony and Panasonic being in an electronic market have made its losses increase more and more. Some consumers may want to change smartphones every six months or so. But everyone might not want to change television once in a while. Electronic manufacturers have to research and develop products, which increases their total costs. Hence, these electronic firms have high losses due to increase costs and a reduction in sales.
Honda in which cases needed money to build factory could have a loss as it has to sacrifice its profits. Factory-building is not cheap and takes a long time.
Acer and HP have made losses due to competitive market. Even after acquiring HP and Compact, it still made huge losses. Thereby, high losses of firms can be helped through applying economies of scale.
The world is getting faster and faster. Consumers expect new products every few months with cheaper prices. Factories have to produce more products, with lower cost and better product mix. Therefore, manufacturers have to have economies of scale.
Reference
Notebook
Textbook
Originality : 100% (Grammarly.com)
Monique 8C
B Good work Monique,
DeleteGood use of relevant evidences to explain the key point in the articles.
Don't forget its Discuss question.
Firms can make exorbitant level of profit or losses. They all vary in different countries. They also differ according to the type of market they're in and also the size they are. Here are some of reason why firm could make exorbitant losses
ReplyDeleteOne of the reason is the loss of the demand due to the technological changes.
Blackberry, was a popular device in the early 2005. However. it come late in introducing touch screen and got beaten by i phone. It post a huge 4.4 billion losses from continuing operations.It major loss caused by the manufacturer of the hand sent. Black berry 10 sales failed to take off, and cause blackberry to lose its economic of scale.
Firms can benefit from economics of scale. A firm can benefit in mergers or acquisitions. In blackberry cases, they solve the problem by doing partnership with Taiwanese manufacturer Foxconn. Foxconn is the maker of I phone. By eliminating the loss making handset. blackberry could focus in developing the software, where they have the competitive advantages.
Another example how economic of scale can create exorbitant profit is by looking at indofood.
Indofood is the largest noodle manufacturer in Indonesia. They also have the largest flour milling in indonesia. In addition indofood also has a huge CPO plantation that produce cooking oil that is used in the noodle manufacturing. By becoming vertically integrated and with massive economic scale in buying the wheat and producing the flour. Indofood can priced its instant noodle very competitive and finally has beyon 70 % market share in the noodle market.
In conclusion , when firm losses its economic scale they can posted a massive losses. On the other hand economic scales and vertically integrated company could create huge profit. The company could join venture with another company to benefit from each competitive advantage or they can do vertical integration to benefit from the supply chain and avoid paying profit margin.
93% original
ref:http://www.thestar.com/business/2013/12/20/blackberry_reports_44_billion_q3_loss.html
ReplyDeletehttp://www.indofood.com/
B good work Nicholas
ReplyDelete