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 8B
__________________________________
Case Studies based Question
Please read above mentioned news articles and use the information in preparing your article for the given question. I will appreciate if you use other referenced information in support of you 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
Economies of scale is a firm production in short run and long run . short run is a time duration in which one factor of production cannot change . Short run will have the law of variable proportion and law of return . Long run will be having 2 laws which are return to scale and law of fix proportion .Now the question is that, can the firms benefit using this theories ?
ReplyDeleteWell of course the answer of the above question is yes . Firm will got benefit from this theories and they also can containing the losses . First is the short run . Short run= Fc + VC . They will have the law of variable proportion which have 3 different stages. Stage one is , total production increase with high rate . So , if total production increasing , then off course the profit will also increasing . Stage 2 will be total production is increasing with low rate and stage 3 will be Total production reaches maximum and start falling . the example for this is like the in the news of Fat profits: how the food industry cashed in on obesity. Its stated that the food have sale many production but , it will decreasing because it produce a lot of bad effect for the people . so , when they are in the first and second stage , they have a lot of production. But now , because of the bad effect , they are in the stage 3 , Which is , they production already maximized and start falling . The second example will be like in the news of sony . its stated that sony was the ninth largest PC supplier in the first three quarters of 2013, with a 1.9% share after shipping about 4.4m units. In the third quarter its worldwide shipments were just 1.5m units, down from 2m a year earlier .So this just be the same example with the theory . stage one and two , they will have a lot of production . But in the stage 3 , total production have reached the maximum and starts falling like the SONY company . now , Not only short run , but there are also long run . Long run will have the return to scale and fix of proportion law. Return to scale is divided into 3 which are first , increasing return to scale . So ,it means that if the firm increase the number of input , their number of output will also be increased more than the input have increasing . The second one is Constant return to scale . This means that if the firm increase the number of input , they number of output will be increased but not as many as the input . Like example the business increase the input twice , but the output , will not be as many as the input . It may be only increase 1.5 times . the third one will be diminishing return to scale . so this means , if the business increase the input twice than the output will also be increased twice. Business will have a lot of profit if they have the increasing return to scale . They will gain a lot of profit if they had this .
But not only advantages , but they will also have some disadvantages .the first disadvantages will be at the short run . Well in here , business may have a lot of production , but at the end , business will starts to fall . when they starts to fall , some business cant take it anymore , and they may sale their business because of too much loss . the example will be in SONY company . its stated that the business want to sell their company because of too much loss. They didn’t sell their product with the number of target . so , it makes them fall . The second disadvantages will be in long run . Long run will have the constant return to scale . if the business got this , they will have a lot of loss . This is happen because if the business increased their input twice but the output only increased 1.5 times , then this will create a loss for them .
ReplyDeleteSo , business will get benefit by using the theories of economics . But not only advantages , but they will also have some disadvantages . For the short run , for sure business will have a loss because when they reach in stage 3 , the production will be maximized but they will starts to fall . For the long run , constant return to scale may bring a disadvantages for a business .
References : - news 1 -10
- Economics book
- Note
- Wikipedia
Originality – 98%
kezia- 8b
C Good work,
DeleteYou have put in lot efforts to explain the mentioned question with the help of economic theories. Better to write in smaller paragraphs, focused on the single aspect of explanation. I would suggest you to go for spell check, many places you forget to mention capital words after full stop.
There are many companies in the world that are growing well but also there are many that are suffering from loss and finally closed down. Companies need to have a good management of their operational and also marketing departments. However, to survive in the market, aside from their management they also have to be able to adapt to market needs as well as market expectations.
ReplyDeleteThere are many new companies that are making sudden huge profit due to the trend that is going on in the market. Although they seem to be doing well in the present market, it is not guaranteed that they can survive for a long time. To survive in the market, a company has to have a very good understanding of their market segmentation and also operational technology as well as cost control. For example, Toyota company. In producing vehicles in countries around the world, Toyota actually need to know their market well because different countries has different needs. In Indonesia, Toyota is making enormous profits by producing Avanza ( a medium size MPV ). The product has been booming eversince it was launched in the year of 2003. This car has been the icon for Indonesian families as it meets the needs of Indonesians with its specious interiors, easy handling vehicle, low price maintenance and also affordable price. This shows that Toyota actually know the theory of economics well and it is proven that their knowledge on economic segmentation and need has help them to improve their productions as well as helping them making continuous big profit. On the operational side of manufacturing the vehicles, Toyota also implementing the effective and efficient production system. This is shown by the production and the selling of the Avanza is not done in all countries of the world but only in some countries that the people mostly have medium to low annual income such as, Indonesia, Philipines, Malaysia, Bangladesh, Mexico, and Sri Lanka.
I am very sure Toyota took this decision of producing Avanza in this developing countries based on their market research on the affordability needs and also wants of the market which in the end showed that this production suits the developing countries. This is because in producing vehicles Toyota will certainly have certain efficiency margin that they have to pay attention to in their manufacturing cycle. Since the developing countries are the ones that have more market that suit this vehicles, therefore they do the selling as well as manufacturing in this countries because their target is medium to low income families, they will need to set an affordable price which means they have to reduce all possible cost. The more quantity they produce will result in lower production cost as the only cost that will increase will only the variable cost while the fix cost will stay the same no matter how many units they produced. Hence the more number of vehicles they manufacture, the overall cost per unit will be lower than if they only produce small number of units.
Since this measure is taken by Toyota, especially in Indonesia, The company is actually making a very huge profit and in fact has minimized their probability of suffering from loss as Avanza is actually selling very well and even has become the family car Icon for Indonesians. This shows that the theory of economy in marketing as well as production has been a big help and also a critical factor for the company in taking decisions.
references:
- http://audiprabowo.tumblr.com/post/8341263076/the-icons-toyota-avanza-throughout-history-every
- http://en.wikipedia.org/wiki/Toyota_Avanza
- own thinking
Results: 100% unique content
C, Good work.
DeleteIts important to be focused on the question. You should present the use of economic theories in explaining the high profits or losses with the help of various economic theories. Like how law of variable proportion and return to scale help the producers to decide the level of production in short and long run.
Profit is the amount of money that is earned by a company when their total sales reduced by the total cost of selling a good or service. Profit happens when the total money earned from sales is higher than the cost. Profit is what most companies aim for with an exception for some companies. While loss is the total money loss by the company. When their total sales is reduced by their total cost. It happens when the total cost is greater than the money earned earn sales. Loss can be viewed as the opposite if Profit and vice versa.
ReplyDeleteThe main objective for most business as I have said before is gaining as much as profit, while find ways to reduce cost effectively. There are two main factors in controlling the profit and loss, the ones that can be changed by the company and the ones that aren’t.
The ones that can be changed are the ones that are related to the business decisions of the companies. One example is to develop new and innovative products that could have large demand, for example smartphones as these days there is a large market for them causing companies that sell smartphones to grow exponentially. Because when a demand of a product is high, the product is going to sell more. The other main one is to find new ways to reduce the cost of product as decreasing the cost means more total profit per product sold. This is easily found in the technology side of products, as technology is increasing at a very fast rate.
The other factor which are the ones that can’t be changed by the company whatsoever. One of the examples is government rules, the rules made by the government cannot be changed by the company whatsoever. Example is the mineral mining ban at Indonesia by the energy and mineral resource prime minister, companies that use to operate these mines are not allowed to anymore and they cannot change it. This can affect the supply of a product to decrease and by that increase the price of a product, but the demand of the product will decrease that could cause a large loss to the company. Another factor would be competing companies and their decisions to make and sell products. A company cannot change any decision taken by another company. If the competing company manages to take a large proportion of the market as their demand they can change the profit and loss flow of the other companies that are competing. A case that Nintendo had very recently, its market has been dominated by the PlayStation 4 from Sony and the Xbox One from Microsoft. Demand for Nintendo’s Wii U was eliminated by these two other gaming console from Sony and Microsoft. This little demand for the Wii U caused a very large loss for Nintendo in the process.
In conclusion, there are two types of factors for a large profit or loss the one that can be changed by the company and the ones that can’t, any factor can change the demand for a product which could change the profit or loss flow.
References include:
http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
http://www.bbc.co.uk/news/business-25708346
I Have checked with http://smallseotools.com/plagiarism-checker/
My result shows that my content is 100% Unique
C, Good work.
DeleteI think you have deviated for the right answer. This question wants to know how economic theories (law of variable proportion and returns to scale) help to explain in taking decision regarding the production level.
Try again, if any problem dont hesitate to ask me. :)
A Firm may benefit and make more profit by using the theory of Economics of Scale. Economics of Scale is When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. The more goods are produced, the lower the average cost per unit output, this is because the cost of producing goods is shared over a large quantity of products sold. Most firms in the world is able to achieve an exorbitant level of output, either as a profit, or loss
ReplyDeleteEconomics of scale is divided into two types, which are internal economics of scale and external economics of scale. An internal economics of scale is a situation in which all factor of production can be controlled by a firm, this means that the theory of producing more and less average cost per quantity is used in internal economics of scale. An example is that when a company buys quantities and raw materials in bulk, such as French fries companies, they would likely to buy a greater amount of potatoes from the farmer to achieve greater volumes of discounts from the farmers this is because it is much more simpler for farmers to send larger amounts of potatoes all at ones rather than sending small amount of potatoes to more than a time. In turn, the farmer who sold the potatoes could also be achieving advantages if the farm has lowered its average input costs through, for example, buying fertilizer in bulk at a volume discount.
The factors include of internal economics of scale include:
Management economics of scale, financial economics of scale, technical economics of scale, risk bearing, purchasing economics of scale, and marketing economics of scale. These are all the ways to achieve a better output with a greater result in the end. Most of them are talking about bigger and better qualities, example purchasing more advanced technology and hiring a professional CEO so that the firm may benefit more in the future.
Now, an external economics of scale is a form of increasing returns to scale in which productivity and thus costs of individual firms depend on the output of their entire industry. Unlike internal economics of scale, external economics of scale depend more on society, governments, and other company rather than just their own, such as access to trained workers, without trained workers, most firms will not able to perform its task while handling a very big company. Infrastructure also affects to a company, an example is the road, governments are the ones who provide these accommodation, without them, company could not send and receive goods which are being sold and purchased from each other. And also ancillary firms, they are small supplying companies, which provides easy raw materials, an example is a clothing company, Topshop. They specialized on designing and producing fine clothes, but to sell them, they will need a plastic bag to offer their products to the customers, and Topshop is not a company who specialized on producing plastic bags, so the company would purchase plastic bags from ancillary firms.
(continued) Several companies in the world would also sacrifice some losses when producing goods in the beginning of the production, such as the Honda Motorcycle and Scooter India (HMSI) firm. They decided to loss some of their assets in short term and regain their larger profit in long term. If the company makes a good, well-planned and organized planning in the first place, they may succeed in the future using the theory of economics of scale. But if they fail to cover the demand and cost to the production of goods, usually the firm will gradually cut cost so that they can gain more demands from less wealthy consumers to cover up the cost.
ReplyDeleteNote that not all firms will achieve exorbitant profits by using economics of scale, in fact, they may suffer from diseconomies of scale. They could stem from inefficient managerial or labor policies, over-hiring or deteriorating transportation networks. Furthermore, as a company's scope increases, it may have to distribute its goods and services in progressively more dispersed areas. This can actually increase average costs resulting in diseconomies of scale. Some problems might occur if the company decides to grow bigger using the factors of economics of scale, such as, managerial diseconomies of scale, communication breakup, labor diseconomies, high payments, and corporate social responsibilities (CSR). An example of diseconomies of scale is the Nintendo company, on producing the Wii U. the company projected a profit of 55 billion yen, but instead, they achieve a surprise loss of 25 billion yen. According to Bloomberg, this happens because lack of demand from consumers, since now people are more interested in the faster Sony PlayStation 4 and Microsoft Xbox One and also, “The video-game market has moved into smartphones and tablets,” said Mitsushige Akino.
to end my essay, in conclusion, some firms may produce an exorbitant profit by following and understanding the factors of economics of scale, but remember that bigger isn’t always better, some firm may result in diseconomies of scale, and risk on loosing large amount of assets and money.
Originality: 88% by http://smallseotools.com/plagiarism-checker/
ReplyDeleteReferences:
http://www.investopedia.com/articles/03/012703.asp
Wikipedia.org
Notebook
C, Good work.
DeleteYour answer has deviated from the correct answer. Here in this question we should explain how economic theories(Law of variable proportion and Law of return to scale) help to explain the profit or losses of the firm.
PART I
ReplyDeleteMost firms desire to expand their business because it may have much benefits such as having less cost by purchasing more materials, get more profit, gain in market value, and many other good ones. Firms may be expanded by make its scale of production to be larger. Expand in production properties (advantages and disadvantages) are discussed in the theory of economies, economies and diseconomies of scale. Economies of scale are the beneficial factors will be earned by expanding production which also reduce the CPU (Cost per unit). While diseconomies of scale is the unbeneficial factors or risks that may be faced by firm that want to increase its production to be very large.
We will now proceed to discuss the properties of economies of scale. There are two types of economies of scale, Internal and External. Internal economies of scale is all factors of production that can be fully controlled by the firm. While external economies of scale is the factors of production that depends on the outsourced situation. Internal economies of scale may include:
1. Managerial economies of scale, which means the firm will have greater management skills from hiring more specialised workers.
2. Financial economies of scale, which means the firm will be easier to get money access from issuing shares in the stock exchange.
3. Marketing economies of scale, which means the firm will have bigger marketing expenditures to be more specialized in the market.
4. Technological economies of scale, which means the firm will have much better machines and other capital products.
5. Risk bearing, which means even though the firm get trouble which worth over $1bn, for them, it was not a problem.
6. Purchasing economies of scale, which means the firm may get much discount when buying raw materials because it buys on very large quantity.
While external economies of scale may include;
1. Access to trained and skilled workers, which means even though the big firm can pay much on many specialized workers, it will be useless if the country they do production in, have no much specialized workers provided.
2. Built shared Infrastructure, which means the quality of the firm’s production quality will also depends on the country’s provided infrastructure. If the country’s infrastructure is bad such as frequently having electricity shortages, that means the machines can’t work properly because having no electricity power.
3. Ancillary firms, which means if no supporting firms such as the screw supplier is unavailable for chair making company, the production will be stuck or even failed.
Next, we will discuss about the factors of diseconomies of scale;
1. Managerial diseconomies of scale, which means it might be difficult to control the labour activities because having too large production activities.
2. Communication Break-up, which means the manager might be facing difficulty to instruct the workers.
3. Labour diseconomies, which means the labour might don’t want to work anymore or creating labour force.
4. High payment, which means the labour might expect very high payment even though they are not specialised but the firm still need them to operate their production.
5. CSR (Corporate Social Responsibility), which means big firms should provide this public foundation such as free or cheap fee school, hospital, or else will be charged a very high taxes by the government.
So, those are the factors of both economies and diseconomies of scale. Why those theories are created? It means that there are two types of possibilities when a firm going to expand their scale of production, either going for having loses or profit.
PART II
ReplyDeleteThose effects in expanding production scale can be determined in the @Return to Scale@ theories based on the law of fix proportion which will only works on variable cost. The types are;
1. Increasing return to scale, which means the number change in output will be higher than the expansion value (input), ex: Input = 4 X – Output = 8 X
2. Diminishing return to scale, which means the number change in output is lower that the input value, ex: Input = 8 X – Output = 6 X
3. Constant return to scale, which means the number change in input is equivalent with the output value, ex: Input = 8 X – Output = 8 X
Another related law is @Law of variable proportion based on three different stages which is working on fixed cost and variable cost. Which may concludes;
1. Stage 1 – Total production increase with increased in production rate
2. Stage 2 – Total production increase with increased in diminishing rate or decreased in production rate
3. Stage 3 – Total production reaches maximum/optimum level and starts falling.
Actually, by doing good planning, the expansion of production scale will run successfully and will have higher or multiplied profit. However, some firms expanded their production scale in a rushing time with bad planning or even no planning. It may usually happen to the firm that produce goods that produce based on trends or seasons, such as clothes, umbrella, technology devices, etc. We may take an example from Blackberry by Research in Motion limited, Inc. In the half of 2009, when Blackberry introduced world for the new simple messenging systems (BBM – Blackberry Messenger), Blackberry demand increased very drastically. Because of that demand, Blackberry only focused in developing the BBM. Even though they do successful expansion of production scale with getting Increasing return to scale as the effect, that only remains for around two or three years long. Blackberry are easily competed by other multinational companies such as Samsung Smartphones and iPhone by Apple Inc. because Blackberry did very fast production on their products without focusing in their product’s features, even only in BBM features development, they are relax on it, because they were too confident that no other competitors may compete them. Step by Step in 2012, customers were moving to use Samsung smartphones and no longer use Blackberry because Samsung’s features which has fast and best OS-based development, Android which having much more features than Blackberry. After they are competed, Blackberry loses and soon go bankrupt.
And so those theories are very useful for any firm who is going to expand their production scale in order to avoid any loses such as get @Diminishing return to scale, which means the number change in output is lower that the input value, ex: Input = 8 X – Output = 6 X.
However, those theories might also useless to be learnt for a certain population, because through logics and good planner entrepreneurs (natural habits to plan before doing), risks in expansion of production scale could be evaded.
So in conclusion, when a firm wants to expand their scale of production, they should think and plan very well for it first. Because if not, they may face many problems, loses and disadvantages.
Reference:
Moynihan, D. and Titley, B (2012) Complete Economics For Cambridge IGCSE &O Level Second Edition. Great Clarendon Street: Oxford University Press.
This is the discarded part, below is the correction!
DeletePART II
ReplyDeleteThose effects in expanding production scale can be determined in the @Return to Scale@ theories based on the law of fix proportion which will only works on variable cost. The types are;
1. Increasing return to scale, which means the number change in output will be higher than the expansion value (input), ex: Input = 4 X – Output = 8 X
2. Diminishing return to scale, which means the number change in output is lower that the input value, ex: Input = 8 X – Output = 6 X
3. Constant return to scale, which means the number change in input is equivalent with the output value, ex: Input = 8 X – Output = 8 X
Another related law is @Law of variable proportion based on three different stages which is working on fixed cost and variable cost. Which may concludes;
1. Stage 1 – Total production increase with increased in production rate
2. Stage 2 – Total production increase with increased in diminishing rate or decreased in production rate
3. Stage 3 – Total production reaches maximum/optimum level and starts falling.
Actually, by doing good planning, the expansion of production scale will run successfully and will have higher or multiplied profit. However, some firms expanded their production scale in a rushing time with bad planning or even no planning. It may usually happen to the firm that produce goods that produce based on trends or seasons, such as clothes, umbrella, technology devices, etc. We may take an example from Blackberry by Research in Motion limited, Inc. In the half of 2009, when Blackberry introduced world for the new simple messenging systems (BBM – Blackberry Messenger), Blackberry demand increased very drastically. Because of that demand, Blackberry only focused in developing the BBM. Even though they do successful expansion of production scale with getting Increasing return to scale as the effect, that only remains for around two or three years long. Blackberry are easily competed by other multinational companies such as Samsung Smartphones and iPhone by Apple Inc. because Blackberry did very fast production on their products without focusing in their product’s features, even only in BBM features development, they are relax on it, because they were too confident that no other competitors may compete them. Step by Step in 2012, customers were moving to use Samsung smartphones and no longer use Blackberry because Samsung’s features which has fast and best OS-based development, Android which having much more features than Blackberry. After they are competed, Blackberry loses and soon go bankrupt.
And so those theories are very useful for any firm who is going to expand their production scale in order to avoid any loses such as get @Diminishing return to scale, which means the number change in output is lower that the input value, ex: Input = 8 X – Output = 6 X.
However, those theories might also useless to be learnt for a certain population, because through logics and good planner entrepreneurs (natural habits to plan before doing), risks in expansion of production scale could be evaded.
So in conclusion, when a firm wants to expand their scale of production, they should think and plan very well for it first. Because if not, they may face many problems, loses and disadvantages.
Reference:
Moynihan, D. and Titley, B (2012) Complete Economics For Cambridge IGCSE &O Level Second Edition. Great Clarendon Street: Oxford University Press.
Plagiarism was not detected. 100% Unique. Checked by http://smallseotools.com/plagiarism-checker/
Deletea, Done well,
DeleteGreat to see you have given more then required. Your writing looks like a text book writing. In this question we should focus on the problem so that saved time can be used to improve the quality of answer.
Well Done Neil.
Some firms are making a huge amount of profit because they take advantage of these theories, but some other firms also make losses because of this theory. Economies of scale are the firms’ production in the short run and the long run. Efficiency is greater with an increasing scale which leads to lower variable cost; this is why some companies can make a lot of profit.
ReplyDeleteThese theories benefit many companies, that is why some companies are making an exorbitant amount of profit. Some advantages of economies of scale are the reduction of the long run average costs of production, firms can afford to invest in expensive and specialist capital machinery, businesses can split complex production processes into separate tasks to boost productivity, firms can spread its advertising and marketing budget over a large output and it can purchase its inputs in bulk at discounted prices and finally large companies have access to credit facilities with good rates of borrowing. Companies who used to produce fat and unhealthy foods are also making profit from the slimming industry, because the people who consumed their products become overweight and some of them are obese. Because of this the people are desperate to lose weight so these companies now produce low fat food and sugar free products to satisfy the consumers, this is how the companies benefit from the theory. Another example would be the profits that the UK is making from Indonesia’s destructive mining industry. Destructive mining can destroy forests and displace communities, but it can generate a lot of income so the UK can benefit from this.
Sometimes some companies don’t benefit from these theories and instead of making profit they are making huge losses. These disadvantages are called diseconomies of scale. Diseconomies of scale mean that the average cost is increasing in quantity; eventually, average cost becomes higher than the market price and the firm can’t break even any more. An example of a company who is making a loss instead of making profit is Honda India. Honda India’s profit declines the first time in 5 years because they are sacrificing their profit in the short term as it builds scale through new products, manufacturing capacities ramp-ups and promotional spends in India. Another business who are not benefitting from these theories is Sony. Sony is considering selling the Vaio PC business because it is not making a profit but instead it is making huge losses for the company. Shrinking consumer demand is one of the reasons why the company is not generating any profit. Another example would be Nintendo who made a surprising loss of $240 million. The Wii-U is nothing compared to the PS4 and Xbox One made by Sony and Microsoft because hardcore gamers would prefer to play with faster gaming consoles.
So in conclusion, economies of scale can benefit companies to generate a lot of profit but it can also generate huge losses for the company just like Nintendo and Sony. Mining companies and Food companies can benefit from these theories though.
References:
http://www.ask.com/question/what-are-advantages-of-economies-of-scale
http://wiki.answers.com/Q/What_are_the_disadvantages_of_economies_of_scale_for_a_business?#slide=1
Notebook
Originality: 95%
B, Good work Denzel,
DeleteThis comment has been removed by the author.
ReplyDeleteEconomic of scale is, the advantage when we buy a product with more amount because average cost decreased there are two type short Term ,which formula is FC+VC and long Term ,which formula isn VC does this helps and benefit the firm? Okay lets try to find out .
ReplyDeleteFirst is about the short run, its the shot run have 3 stages in it. The first stage is, total production increase with higher rate, second is that total production is increasing with lower rate and the third is that the total production reaches maximum and than it started to fall again.
The meaning of the first stage is, that the total production will also be rising with a huge expense, second is that tp is increasing with lower rate which means that when the total production there is a certain spot when their production is very big but, their cost is low its because economic of scale this is the best spot for a business and third is that the total production reaches the maximum and it start falling which means that the business product is no longer wanted and so even if there is high level of output their sales are low, examples are such as in the Nintendo mulls new business models after forecasting lost this is when Nintendo is rising they use a lot of capital their total production rise but their rate also rises, second is that they have reach their best output level and also the cheapest rate this is this glorious day of Nintendo and than after the release of wii U because nobody likes it the total production is at the max but because little demand it goes down and now Nintendo have losses .
Second is the long term,It also have three increasing return to scale in which is when a firm is able to more than double its input and also more than double its goods or services output ,second is the diminishing return to scale when it doubled it factory input but fail to doubled the company output third is the constant return to scale is when the input and output both doubled .
So firms get advantages, such as like at short run stage 2 they have maximum output with low rate, which make them very profitable moment for them and also if increasing return to scale happen because they double their inputs and is able to more than double of its good and service.
While the disadvantage is, when the company is on the third stage of the shirt run when the output us max but than it start falling and the diminishing return to scale because its having input failed to double the output.
So my conclusion is, theory of economic really help firm because it can make firm make the right choice and so they wont get losses.
References
Cornell notebook
Text book
http://www.bloomberg.com/news/2014-01-17/acer-posts-record-loss-after-making-further-write-offs.html
Originality
100% 4 unique content.
B, Good work.
DeleteYou should do the proof reading of the article before posting on the blog. Many places the sentences are broken with out complete meaning.
There are firms that are able to produce exorbitant level of profit but there are also firms that have an exorbitant level of loss. This is because some firms utilize the economies of scale to help them generate more profit. The economies of scale arises when a company produce goods in a large scale. When a company do a large scale production , the average cost of each of the goods are reduced because the total cost is divided to a large amount of goods so each goods will have lower average cost than in a smaller scale production. Sometimes firms can also produce too much or grow too much .Since the firm produce too much goods, there will be more total cost. Since the total cost increases, the average cost of each of the good produced will also increase, resulting to an exorbitant level of loss and to the diseconomies of scale may arise. These are the example of the economies of scale and the diseconomies of scale.
ReplyDeleteLarge firms who do large scale production and are able to achieve economies of scale gains these benefits. Firms need to buy raw material, capitals and components from other companies or suppliers. Large firm are often able to buy these materials in a large quantity at the same time. Sometimes , the supplier will offer price discounts to the firm because buying a lot of materials at the same time helps the supplier not to waste money on the delivery. It means that it is better to deliver a lot of materials in the same vehicle rather than a lot of materials to deliver in more vehicle. This can be called as purchasing economies of scale. This means that the company who do a large scale production are able to pay less for their materials unlike smaller firms. Sometimes, firms need to borrow money from other sources because the firm is not able to generate enough money to grow into a larger firm. Large firms often borrow more money and they can borrow them at a lower interest rate than smaller firm. This is because banks and other lenders believe that lending larger firms money is not to risky compared to lending to a smaller firm. They believe that larger firms are more financially secure and can offer more assets if the firm are unable to pay their loan. Public companies can also sell shares to raise capital . This can be called financial economies of scale. This means that large firms who do a large scale production are able to get money easily from a lot of sources.
But sometimes large firm can grow to large and produce a lot more. They may gain this disadvantage. Managing a large companies is difficult, especially when the firms operates in a lot of location, producing many types of goods, with different layer of management. This can slow communication from the headquarters of the company because the location might be overseas and there are a lot of different layer of management that needs to be gone through. As a result, decision making will be slowed down. This can be called management diseconomies. In order for a firm to know its optimum level of production so that it can achieve economies of scale, some firms use the theories of economics. The theories of economics help determine a firm’s optimum level of production. At the optimum level of production, the average cost of each goods is at the lowest and firms may achieve economies of scale.
So in conclusion, there are firms which are able to achieve economies of scale but there are also those who can’t. But with the help of the theories of economics, firm are able to know their optimum level of production and achieve economies of scale.
References ;
1.Economics Book
2.News given
Originality : 100%
A, Great work.
DeleteNeed to be focused on the question asked good to see you have used the key terms in drafting your article. Well done, keep it up.
Well as you know there are a lot of firms in the world, some of them got many profits but some of them got loss, of course they built up their business to got profits not to get loss, so they must to work and make their company earn profit, there are many ways to make the firms profit by the theory of economics in improving the margins or containing the losses. Here are the way as it result in advantages or disadvantages.
ReplyDeleteTo increase the profit with the theory of economics, it can by economics of scale. Economics of scale means the firms production in short run and long run, if short run the cost structure is fixed cost and variable cost, as you know that short run it is a time duration in which one factor of production cannot change, so the total cost is equal to fixed cost plus variable cost ( TC = FC + VC ). It’s the law of variable proportion and the law of return. While if long run it return to scale and its law of fix proportion. The cost structure of the long run only need variable cost, it doesn’t need fixed cost. Example like starbucks it’s a multinational company, starbucks earn profit because they use the term of economics of scale, since starbucks is a multinational company so they buy the things in the large amount or quantity so that the cost of per unit become low or we also can say that the average cost decrease, so that they can earn more profit by doing that. Well to increase the profit they also need a good management to control the business, to control the profit and loss so that they didn’t have many loss. The business should also invent something new and unique, example like snapchat, snapchat is sometime unique because the people that receive the message only can see the message in limited time, and because of that snapchat boost up their earnings and gain a lot of profit by that.
But not always, firms that use the term of economics of scale end by profit, some of them end by loss, or some of them sacrifice the profit to built up the scale, example just like Honda india, they sacrifice the profit to built up the scale, they get losses it is said that they got loss to rs 1,000. Honda sacrifice the profit maybe to get another bigger profit in the future. Economics of scale has 3 types, increasing return of scale, constant return of scale and diminishing return of scale. Diminishing return of scale result in disadvantages because example at year 1 our profit $5000 and our capital $100 at year 2 our capital become doubled $200 but our profit decrease become $4000. The example of the company that sell the investment is sony, sony consider to sell vaio pc because have pushed division to loss.
So in the conclusion there are many and various way to increase the profit of the firms like example by economics of scale that means buying more quantity that result the average cost lower or decrease, it may affect the firms to get more profit. But not always, some of the firms that already use the term of economics of scale but they still got loss, one of them is like example diminishing return of scale, in the year 2 their profit falls and also sony that they sell the vaio pc.
references:
- notebook
- news 1-10
originality: 100%
-Shelvina Gabriela 8B-
B, Good work
DeleteThere are two types of Economics of scale . Which is ; Internal Economics of scale and External Economics of scale . What is meant by Internal Economics of scale ? Internal economics of scale is the average or unit costs can be reduced as a firm grows in scale because it gives the management or owners a chance to reorganize the way the firm is run and financed. Such decisions are taken within the firm and so the advantages or economies they bring are known as Internal Economics of scale . In Internal Economics of scale will reduce the average cost of producing each unit of output as the scale of production is expanded in a firm. There are five main types o internal economics of scale . 1. Purchasing Economies means when large firms are often able to buy the materials, components and other supplies they need in bulk because of he large scale on their production. Usually suppliers will offer price discounts for the bulk purchases because it is cheaper for them to make one large delivery than several smaller deliveries. 2. Marketing Economies means that large businesses may buy their own vehicles to distribute their goods and services. 3. Financial Economies means when large firms can often borrow more money and at lower interest rates than smaller businesses. 4. Technical Economies mean when larger business often have the financial resources available to invest in specialized machinery and equipment, to train and recruit highly skilled workers. 5. Risk-bearing Economies means a firm must have this type of economics of scale to bear with all of the risk that may be happen , this is meant by Risk-bearing.
ReplyDeleteLarge firms may share External Economics of scale with rival producers as a result of their entire industry being large . They may include the following :
- Large firms may have access to a skilled worker because they can recruit workers trained by other firms in their industry.
- Ancillary firms may develop and may locate nearby large firms in particular industries to provide them with the specialized equipment and services they require.
- There may be joint marketing benefits. For example , firms in the same industry co-locating together in an area well known for producing high-quality products may share an enhanced reputation.
- Firms may benefit from shared infrastructure.
So , that is how firm can benefit with Theories of Economics in improving profit margins or containing the losses .
There are three effects in expanding production scale .
1. Increasing return to scale, it means when the number change in output is higher that the input. Ex : Input = $2 , Output = $4.
2. Diminishing return to scale, it means when the number change in output is lower than the input. Ex : Input = $ 4 , Output = $ 2.
3. Constant return to scale, it means when the number change in output is constant or equal with the number of input. Ex : Input = $6 , Output will also be $6 .
So in conclusion , we have two types of Economics of scale , which are ; Internal economics of scale and External Economics of scale . And there are three effects in expanding production scale . Which are ; Increasing return to scale , Diminishing return to scale , and Constant return to scale.
That is all from me .
Leonardo - 8B
Reference : Complete Economics for Cambridge IGCSE & O LEVEL
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Sorry sir Bipin if there is some miss-typing , because i type it from my handphone .
B, Good work,
DeleteNeed to keep focused around the topic that need to be explained.
There are many things that may influence the increase in the profit margins and losses. As for the high level of increase for profit includes:
ReplyDelete1. Increase in sales:
- Demand
When a certain firm invents a new product and is in high demand, many people will want to buy it; hence the profit will be skyrocketing. Take flappy bird as an example, the minute it was launched the demand was skyrocketing until the owner decided to shut it down since it was more successful than planned.
- Franchises
The firms usually open branches in various cities, which will increase their market share hence increasing the revenues and also their income from their market share.
- Customer Service
If a firm increases their services, the customers will be happier and they will be more generous and pay more
- Streamlining the process
Using this method the firms will then finish the process faster and get more customers.
2. Efficiency in cost:
- Reduction in man power
The firms should reduce the money they invest in their manpower and put more of their money to their machines
- Reduction of stationery
For example a firm has 10 people working in the IT section. Each person has 1 printer; they should reduce their expenses and make these 10 people share just 1 printer instead of having 1 each.
3. Regulation:
- Subsidy
When the government put subsidy then the demands will increase, hence the sales will too along with the profit
There are also several causes for the exorbitant levels of losses too:
1. Sales decreased
- Key person left the company
A key person is a person who is very important and his skills are very critical to a company’s growth or viability. For example a CEO or a marketing director), left the company then the company will be in a very bad position.
- Decrease in customers
Customers may move to competitors. There are various reasons for this, maybe because the competitor has a cheaper price but a higher quality of goods, and also better service. An example of this is blackberry to apple.
2. Costs increased
- Uncontrollable man power cost
Firms may plan aggressive expansion that requires many manpower yet however the sales didn’t achieve
- Increased recruit of manpower
When the manpower increased that would mean that there would be more computer expenses, pension cost, salaries, and also benefit costs
3. New regulations
- Impose new rules
The regulator may impose a new tax rate or a new tariff, then the company may suffer losses. An example of this is OJK New Regulation no. 6 in 2014 that states new tariff for insurance.
Firms may grow in size internally or externally. They could grow internally through increasing the prices of their goods or services or reducing their expenses. Through externally they can expand through mergers and acquisitions. There are integrations too, there are horizontal, vertical, and lateral. The advantages of expanding the size of your firm are called economies of scale, whilst the disadvantages are called diseconomies of scale. Both the economies of scale and the diseconomies of scale may be internal or external. Internal referring to the advantages or disadvantages inside the firm whilst external means the disadvantages or disadvantages outside the firm.
ReplyDeleteInternal economies of scale are the advantages inside of a firm; they include managerial, financial, technological, purchasing, marketing and risk bearing, whilst external economics of scale include access to trained workers, good infrastructure, and also ancillary firms. On the other hand, internal diseconomies of scale include managerial, communication breakup, labor diseconomies, high payments, and also CSR. These productions of economies of scale are divided into 2, either for the short run or the long run. For the short term they have both laws, the law of variable proportion and of return. For the long run they only have the law of fixed proportion.
There are 3 stages for the short run, first there is an increasing rate, where the total product increase along with the rate. The second stage is when the total product increase with decreasing rate. On the third stage the total production reaches the maximum and it starts to fall. For example for fat profits, the food industry reached it’s maximum and started to fall. Another example would be the Sony Company. They may be increasing during the first and second stages however when they reach the third stage they will reach their maximum and will start to fall.
To conclude my theory, I think that the business may receive benefits/advantages from the theories of economies but they may also reach their maximum and hence start to fall, which is their disadvantage.
References:
- News 1-10
- Notebook
- http://smallbusiness.chron.com/could-cause-increase-profit-margin-22375.html
- http://tutor2u.net/economics/revision-notes/as-marketfailure-scale.html
- http://en.wikipedia.org/wiki/Diseconomies_of_scale
Originality: 100% unique content
Charlene 8B
C, You have put in lot of efforts to complete the task. We should keep focused on the given question. Here question wants you to explain how economic theories help to maintain high profit and in regulation the losses.
DeleteThe two economic theories are law of variable proportion and law of fixed proportion which helps the producer to determine the optimum level of production in order to attain the out put level which can give high profits or minimise our losses.
The theories if economics in improving profit margins or containing the losses are short run and long run. In short run, the theory are fixed cost plus by variable cost but in long run, they only said about variable cost only. The theory of short run is discussing where in stage 1, TP will increase with increase of rate, in stage 2, TP increase with rate decrease, and in stage 3, TP will reaches maximum and starts falling and in long run, the theory is increasing returns to scale, constant returns to scale, and diminishing returns to scale.
ReplyDeleteThere are some advantage for a firm with these theory of economics in improving profit margins it will increase the production of the product when there’s efficiency in using the materials, also sometimes if it same, they can get more production and sell it more so they can get more profit by selling the products. Also if it is in economies of scale, they can get cheaper cost for buying the materials for production. So, it can increase their margins between materials cost and selling cost of the product produced. Decreasing of cost in buying the materials also can make us decrease making the cost of selling our products, it can make us competing with others and if we also still make our price lower than the other sellers, consumers can buy our products instead of buying our rival’s product.
But, there are also some disadvantage of increasing the resources because it can be diminishing returns to scale where there’s no efficiency in using the products. If in 2 times increasing it can produce the product by the multiple of 5 times, if they are increase the materials by 3 times, it may only increase by 3 times, so it can be disadvantage for us to increase our materials or economies of scale. If we are cheated by someone when we buy our materials, we will got more loss of buying the materials. The other disadvantage also if we have produced our product and no one want to buy our products it will make a big loss to the company and the most disadvantage is it can make us to increase our capital.
So, as the conclusion, the economies of scale can be advantage for us if we can use it efficiently and it will advantage for us especially in profit for us where the margins of the cost to buy the materials is increasing more and more with increasing of economies of scale and the disadvantage for us is we can get less profit if we can’t use the materials efficiently where it can cause diminishing returns to scale where we can decrease our production and it can decrease our margins between the cost we spend to buy the materials and the cost of our selling of the products. And economies of scale can make people who want to cheat on us when we buy our materials for production can make us increase our risk of production.
Reference : -Notebook
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Richard Sanders - 8B
B, Good work.
DeleteYou have take much pain in completion of this task. You should go for proofreading before posting your article. Many sentences are unable to present the complete meaning that you want to express.
The solution is to read the article many times and keep practicing.
Economics of scale Is the advantage cost that increases as the output/product increases. A firm, when they grow bigger, they’ll earn more profit(pure one, after been deducted by total cost) because they usually produce something in a large number or called as massive production, and when those large/massive productions will eventually reduces the average cost per unit. And usually these industries will sell these karge quantities of production to the firms in lower price if the firms buy the products/materials in a large amount too, because the industry has some cut price in the beginning and then they transfer it to the firms that buy their products. As stated above, many firms used economic scale to make sure they wont fail in making some important decisions because if it took the wrong one, or it just missed calculated, the firm might get a super extreme loss and may go bankrupt, or maybe if they don’t, they will have some financial problems cause they loss a great amount of money, or maybe for some big firms, it wont affect at all because the firm is just too big and has so many capitals and if they lose billions of dollars, or their new launching product isn’t sold, which may used quite lot of capital, it wont affect them at all cause theyre just too strong, example is when Microsoft launch their tablets and it lost in the market, no people wants to buy them and it cost a lot of money for making the tablets, but the Microsoft’s company still can run well and making lot of profits from other technologies they produce.
ReplyDeleteThere are 2 types of economics of scale, internal and external, theyre different because internal economics of scale is the factors and reasons which are under the control of firms, means the firm can control them and can do changes whatever the firm’s wants, but external is the opposite, it’s the governments’ and people’s controls. Internal economics of scale has some factors, which includes the managerial, financial, technical, purchasing, marketing and risk bearing, they contributes in the internal economics of scale because firms control them. While the external part(external economies of scale), since its according to the governments’ and people’s decision, the firms has no controls on it so it includes access to trained ppl, infrastructure which defines the governments’ service like roads and good electricity and all, for example, if we experienced traffic jam everyday when were going to school, we want to get rid of it by building a new road, its illegal, and when a country don’t have aa good water supply or electricity, the country wont have a good living quality and the country wont develop and ancillary firms, which are the small firms that provide us for like small materials, for example a table, celini(brand). They made the designs, but the metals they used, the screws and woods, they buy it from another small companies, which are called as the ancillary.
Economics of scale means the firms production can be both in short and long run. Inn short run(FC+VC),theres law of variable proportion, law of return TP increase with the increasing of rate, TP is increasing du the decreasing of rate, and the last one is TP reach his max and starts falling.and long term(VC) means retun to scale and law of proportion.
In conlusion, many successful firms used this economic of scale theory to help them to expand, but too bad, there are also some firms that fails when they tried this theory, but it does help most of the firms to be successful, because when it success, itll receive extreme profit, but If it fails, itll get extreme losses too!
-6 unique sentences, 100% originality thankyouuu
B, You have put in much efforts to complete the task. I would like to suggest you that before posting go for proofreading.
DeleteIt is many firms desire to gain more profits and reduce their losses; to do so, many uses the theory of economics, there are two types of Theory of economies, Economies of scale and Diseconomies of scale.
ReplyDeleteEconomies of scale are, in where the output increases and the cost of throughput is less or reduced, the average cost. In Economics of scale, this when large scale of production/mass production means that the price per unit, but it does always goes like this, as economics of scale has two types; Internal and External economics of scale. Internal economics of scale is when the firm can control all of the factors of the production of goods, which is divided into more types, like the management of one company, the budget they have, the technology they use in order to produce innovative goods and how they advertise their product; External is where the factors of production aren’t in the firm’s control, they depend on other in order to work, like the supply of high skilled worker that they can hire, not many can be found, if they do take the non-skilled worker, they have to spend more to train them, they also depend on smaller firms to produce their goods, the infrastructure of one’s country can also be one of the factors that the firm can’t control.
There is also Diseconomies of scale, which is the opposite of Economies of scale; this is the increase of cost with the increase of production, this could happen to a firm if their use of economies of scale backlashed on them, this is when the production of the goods exceeds the maximum capability of Economies of scale, in which causes the increase in cost of production.
In UK, down the aisle you could see streams of processed, high calorie containing food, mixed with chemical, which causes obesity. Many fears obesity, and are desperate to do something about it, this is where the weigh-loss, slimming industry comes in, they promote their fat burning supplements or products, which attracted a lot of people, with that their profit rose, they took advantage of the situation and made their profit high, take for example nestle, which is one of the highest profit making company. This situation may benefit the companies’ profit but this made a huge effect to the world’s view of obesity and appearance, WHO said that this is an epidemic, the BMI changed from 27 to 25 which would make everyone move from ‘normal’ to ‘overweight’.
Nintendo, a once high profit making company for selling console, fell after in most of the 12 years, they had once predicted for 55 million yen for their Wii U console and games but ended up having sales from only 2.8 million for their console out of the total 9 million unit and 19 million from 38 million for their games, their sales decreases but their cost increase because the produced more unit more then what they expected.
So in order to conclude on what has been said above, the theories of economies can both be an advantage and disadvantage to the company of firm, it only depends on how the company/firm manages the works of these theories that could be their, either, downfall (Rise in costs) or their rise in profit.
Reference:
http://en.wikipedia.org/wiki/Diseconomies_of_scale
http://en.wikipedia.org/wiki/Economies_of_scale
http://www.theguardian.com/lifeandstyle/2013/aug/07/fat-profits-food-industry-obesity
http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
Grace - 8B
100% Unique Content
B, Good Work Grace.
DeleteYou have put in lot of efforts to complete the task. While writing this type of answers we should go for proofread for spelling and the meaning that we want to present in our essays.
Economies of scale is the cost of advantages that an enterprises obtain due to the size or scale of an operation, which leads to the falling of the cost per unit. It is a large scale of production that reduces the cost per unit, which means it reduces the average cost. Economies of scale is divided into internal economies of scale and external economies of scale. Internal economies of scale is a situation in which all factors of production can be controlled by the firm. While external economies of production is a situation in whcih alll the factors can’t be controlled by the firm. If a company reduces the cost and increases in the production, it means internal economies of scale is achieved. And if the industry’s scope of operation expands because of the creation of better transportation, which makes the company to decrease in the cost, then external economies of scale have been achieved. There are reasons that cause internal economics of scale more efficient : 1) Managerial Economies of Scale 2) Financial Economies of Scale 3) Marketing Economies of Scale 4) Technological Economies of Scale 5) Risk bearing 6) Purchasing. While there are also reasons that effect the external economies of scale : 1) Access to trade workers 2) Infrastructure (such as transportations, roads and electricity) 3) Ancilliary firms (small supporting firms that provides raw material for big companies to buy)
ReplyDeleteWell, the question asks us whether firm will get benefit from the theories of economies, especially in imporving profit margins and sometimes contain losses From the theories, of course firms will get many benefits from it. But there are also possibilities where they got no benefit, but losses. Economies of scale itself is divided into two : short term (run) and long term (run). Short term is a time duration in which one factor of production can’t change. Total cost of short term = Fixed cost + Variable cost. It is the law of variable proportion. While long term has no fix cost, it is only variable cost. It is a return to scale. There are three different stages of the law of variable proportion. Stage 1 : Total production is increasing with the increase in the production rate. Stage 2 : Total production is increasing witht he diminishing rate. Stage 3 : Total production reaches maximum point and start falling. These theories help alot a company to be successful and earn more profit. They will reduce the average costs of production that the firm given out and will make the company run more efficiently. But somehow, for companies that are not well prepared for the conciquences, they will face failure. It is called the diseconomics of scale, which causes communication to break up and managerial diseconomics of scale. This causes the company to face a very hard time because they got no benefit and make big losses, like for example Honda India, Nitendo and much more. Just like Honda, they want to be number one and it is running behind the volumes and market share. This happens to cause higher advertising and promotion charges. So once they reach their maximum point, the margins and profits will go back. This company don’t gain their success, but they face failure and make losses sweel to Rs 1,000 crore.
So, my conclusion is that every decisions taken should be thought carefully. We should have known all the risks and consequences the company will face is they don’t succeed. And we must prepared well for the company so that it would run well.
Resources : Notebook, Textbook, News 1-10
Regina T. 8B
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