Grade 8A
________________________________________________________________________
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 means that it is the increase of the production which would result in decrease of average cost or cost per unit. Economies os scale could be calculated by the large scale of production divided by the mass production. There are 2 types of economies of scale which is the economic of scale and diseconomies of scale. Diseconomies could also be said as having loses as the increase of production but the average cost or cost per unit is also increased. There are 2 types of diseconomies of scale, which are internal and external diseconomies of scale. External could be caused by the rules and regulation given by the government and it could also be cause by traffic. External diseconomies of scale is when the cost and benefit of the company increases or rises due to external factors which would both increase the cost and benefit of the firm. And internal diseconomies of scale could be said to have the increase of both the cost and the benefit or production which is caused by internal factors of the firm. Internal diseconomies of scale could be caused by managerial and labour diseconomies and divorce of real promoters. For example, Nintendo,Nintendo is now having loss of $240 million annually which when they released the new WiiU offers for Pokemon and Donkeykong was rejected which in theoretically it is said as divorce of real promoters (http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html).
ReplyDeleteIf it is successful in gaining profit, it could be a very large increase of profit as if which the production is increased and when the cost of production per unit decreases, they would receive a massive amount of profit. By having increase of the production it will of course increase the revenue and increase the profit. And when the cost of production is decreased it would make more profit because profit is the revenue decreased by the fixed and variable cost. This decrease of cost of production is the decreasing of variable cost which the more they produce with the lower the cost of production the more profit they would gain. As the economic of scale could be done by, trained workers or skilled workers to be more efficient, raw materials (rare earth materials) , infrastructure, government rules and regulation which could help them to benefit, and ancillaries. These are the external economies of scale, while internal economies of scale culd be done by managerial,purchasing,financial, and marketing economies of scale. This economies of scale could be affected due to the size of a firm. The cost of production could increase as they use the long term run. Which means that they would produce large scale of production in a long term or in a long period of time. This long term run for larger business would usually calculate only the variable cost which would affect the cost, as they produce many products, the fixed cost are not counted and only the variable cost that would make the difference of the cost of production for a long term run. While short term run is when time duration in which firm can't change fixed factor of production. This short term run for companies, the cost of production would be the fixed cost added with the variable cost because they are producing more in only a short term. This long term run is also known as the law of variable reputation, which there are 3 stages. The 1st stage is that the total product increase with increasing rate, the 2nd stage is that the total price is increased with diminishing rate, and the last stage is that the total price is decreased with diminishing rate.
This economic of scale should be risk bearing because it could make extreme profit and could make extreme loses. This is where diseconomies comes out. Diseconomies of scale is where when production is increased but the cost of production is also increased, so as this happens it would cost losses to the company. The internal diseconomies of scale could be happened by managerial and labour diseconomies and divorce of real promoters. Divorce of real promoters means that promoters refused as working with the business or being helped by other promoters. This promoters are those who promote the firm, for example Pokemon, this game Pokemon is a promoter for Nintendo which because of this promoter the Nintendo company receive high profits as promoters promote both business, but as now Pokemon divorce promotion with Nintendo which could make a big decrease of profit and revenue because less promoters are there to promote and help sales. The external diseconomies of scale could be done from traffic or there are problems of traffic in the firm and the rules of regulation given by the government, which could effect a loss to the company. There are also optimum level of which the highest lebel efficiency or optimum level which if it is more than the optimum lebel, it could make the quality or the output decreases. For example, as a worker works for 2 hours, there would be a lot of rest time which he could relax and have good result, but if he works for 7 hours which is the optimum level of which he could work, he could have the best output or the maximum quality or best work from him as the longer his work the better or in other words "practice makes perfect" . But if he work for 14 hours, which is more than his optimum level, the output would be less or decrease as he could be too tired or stress with less focus because of working tooo much hour. This would result as the firm would not receive the maximum output that they should have get. As the result of less from the maximum output, it could result in diseconomies or losses for the company or firm.
ReplyDeleteSo, economies of scale could be risk bearing because it could cause massive profit or losses. And economies of scale could be choosen in long or short term run, which in short term run the cost of production is both fixed and variable cost as the increase of production only occrus in a short period of time, while in long term run the cost is production is the variable cost as the production is increased highly and it will remain high for long time or for a long period of time because as the fixed cost couldn't be changed, so the fixed cost would stay the same but the vsriable cost would change to the production rate. And it is best to have in optimum level to have maximum results but if it is over the optimum level, the result would decrease as it passes the optimum level.
reference: http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
Originality:98%
Economic theory gives some advice or strategy to firm so that the firm can grow in size and expand their business. There are several strategies in economic theory, pricing strategy, perfect competition strategy demand based pricing strategies, competitive pricing strategies and cost based pricing. Three major factors will therefore influence the pricing decisions of different firm in any market , level and strenght of consumer demand , the amount of competition, the cost of production price must cover fixed and variable cost in a long run and yield a profit , a government subsidise will allow producer to lower price. Price skimming is a pricing strategy that is often used when there are little competitions in a market for a new or improved product . it involves initial profit from consumer who are willing to pay more because the product is new or unit. Pricie skimming is a strategy often observed in the market for new technologically advanced product such as computer, televison, music and video player. Penetration pricing involved setting price low to encourage consumer to try a new product to expand sales and increase loyalty. In this way a new product is able to penetrate a market. Price leadership to avoid price wars because firm engage in them alltend to lose money. Price war may developed in market that are very competitive if one or more firm cut their prices or if the market share of establized firm are threatended by a new entrant. Predatory pricing is like penetration pricing but it involves deeper cut in price often below cost in order to destroy the sales of a new or exisiting competitor.
ReplyDeleteIf company have exorbitant level of profit or loss the stakeholders must be aware if the firm have a fraud with their profit and loss. Logically, profit and loss will increase or decrease likely in the previous year. But sometimes because of government regulation or inflation or bad economic condition, profit or loss of a firm with exorbitant level.
Economic gives some strategy to firm to increase their profit, by making a new product , research and developtment , and export the product, by these way, firm can be helped to out a way from loses or crisis, such as panasonic and nitendo, panasonic decided to close plasma TV because of a huge losses, nitendo develop new product to increase their profit and to guarantee the going concern of company, all these decision that company made depends on economic theory and some accounting theory. But some people dont agree if economic theory help company to make more profit because some business think but some people think that economic theory doesnt match with the condition of the business, if it doesnt match, it may cause a loss. Companies have to sell their product with the low price ( penetration pricing strategy) but the company just grown, so it is difficult to company to apply this theory , but actually the penetration pricing is the best way for the new company enter a market.
IN CONCLUSION theory can be applied for the new company , but there are some theories that cant be apllied to some new company. But that is the good way for the company develop bigger.
Reference : 1. http://www.bbc.co.uk/news/technology-24458805
2. http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
3. http://www.wikipedia.com
4. Complete Economics for Cambridge IGCSE & O Level
Economies of scale are the cost advantages that enterprises obtain due to size, throughput, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Sony Vaio wanted to selloff the PC because they are having loss through the time, people are not purchasing Sony Vaio but people are purchasing Lenovo, HP, Acer, Asus and Dell more than Vaio, which sony have produce the Vaio PC in large amount but there is only less people demand for it which makes loss to the company. In order for them to pay the liabilities, Sony needed to selloff of the buisness PC. Sony is in talks to sell its troubled personal computer business and lowered its earnings forecast for the business year ending March to a 110 billion yen loss ($1.08 billion). The company also said it's cutting its global workforce by about 3 percent or 5,000 people.(reference: http://abcnews.go.com/Technology/wireStory/sony-returns-profit-sell-vaio-22386327 TOKYO February 6, 2014, by YURI KAGEYAMA AP Business Writer.)Chinese personal-computer maker Lenovo Group Ltd, posted a 36% increase in profit in its latest quarter and struck a confident note about the company's prospects and recovering PC sales. Traditional PC makers are struggling to sell their desktop and laptop computers. Lenovo, the largest PC maker, managed to sell more PCs globally during the that time, while increasing the average selling prices. This makes the Sony Vaio PC to loss their profit because Lenovo Group have managed to sell more computers globally which means Lenovo has sell their product and makes high increase in their profit. ( reference: http://online.wsj.com/news/articles/SB10001424052702303763804579182893478905238 By JURO OSAWA, Updated Nov. 7, 2013 2:17 p.m. ET)
ReplyDeleteThe conclusion is Sony Lenovo is having diseconomic of scale where they have high production so they less there average cost but they still have the loss and can’t compete in the market. So Sony is considering to selloff Vaio PC.
Reference from http://www.theguardian.com/technology/2014/feb/05/sony-considering-selloff-of-its-pc-business-as-sales-dwindle-vaio
92% unique
Robin 8a
When firms grow bigger, they enjoy economies of scale which is increase production to reduce average cost. Which is divided into internal and external economies of scale. Internal economies of scale which can be controlled by firms and external economies of scale which can’t be controlled by firms. In Internal economies of scale our firms will affected by loans from bank, buying in bulk, and purchase in machinery. If this advantages is not well managed, it will be a diseconomies of scale.
ReplyDeleteOne of the main goal for firm is to achieve maximum profit. When firm started up with sole trader of partnership. Their profit is not much because their capability is still small. When firm grow up until become public company or multinational company, they will enjoy maximum profit and economies of scale. Deciding which type of organization or firms is not the only one to achieve profit especially abnormal profit. Firm have to specialize on field they are good at. They can specialize on: primary, secondary, or tertiary sector. Determining level of industry will play important role. In a business there is always a tagline : High risk means high return. For an example : firm that operates in mining will achieve abnormal profit rather than those who working at manufacturing that have normal risk.
Not only high risk and high return for mining firm or industry, they will create negative effect on environment. They harm animal and people due to their operational. It will result society to pay higher cost for something they did not do. In order to prevent this government regulate it by fined or put higher tax to the companies that give externalities to environment for example mining.
The conclusion is firm which enjoy economics of scale should always do research and development to keep customer interest to buy the firm products. The firm also have to aware about changes in taste in market so we will not lose the competition against another firm.
References :
Dan Moynihan and Brian Titley. (2012). The growth of firms. The relationship between costs and productive scale. 1 (1), 247-248.
http://www.bbc.co.uk/news/business-25708346
http://www.theguardian.com/global-development/2013/oct/30/coal-mining-uk-profits-indonesia
100% unique content
The theory of economic can help some firm to increase the profit. The firms can use the economics of scale theory. First the firm needs to know how to increase their firm. Firms’ growth can be divided into two things: internal growth and external growth. Internal growth is involving a firm expanding its scale of production, the size of its premises, hiring more labor, etc. External growth is joining together firm. Usually it is called integration. Integration has 3 types: merger, acquisition, and holding company. The scale of production is needed to increase a firm’s profit. Firms wanted profit; they need to know how to increase it internally or externally.
ReplyDeleteThe advantage is that if the firms are big, it is easier for the company to find a partnership outside the industry. Usually large firms often able to buy materials, if that firm’s keep on buying the goods, the producer will automatically give a discount for us. The next one is when large firms borrow money from the bank. Usually large firms borrow huge amount of money with a low interest rate. Banks are not stubborn, the can consider which to lend them money. The popular the firms, the bank will be less risky. Larger business often has the financial resources available to invest to improve their machines and equipment. The good thing about large firms is that it can reduce the risk of the business. How? By producing a range of product or producing many different types of goods and expanding into different consumer market. It is called diversification. Why? Because if the firms don’t produce different type of product, the consumer will feel bored about the same type of product. If the firms make different type of product, the consumer will feel excited about other type of product. Large firms may also benefit in finding workforces. They have access to skilled workforces outside the industry. Large firms are benefit in joint marketing benefits. If they do this they will produce high quality products.
The disadvantage is that large firms are harder to control rather than smaller firms. The results are average cost will rises. This type of problem is called management diseconomies. Some large firm is unable to attract enough workers with right skill. They have more money to train them to reach the level of the firm. Other disadvantage of economic of scale is that labor diseconomies. It means that firms used more machines and capital rather than using employee. This will make the employee feel poorly treated. If employee feel poorly treated, inflation could occur. Inflation is the price of good increases while the money currency will decrease. The next one is that if the firms merge with too much company, then other will also take part in controlling the firms. This will make the owner hard to make decisions and manage or control his own firms. It is called agglomeration diseconomies.
So, in conclusions firms need to consider about the disadvantage and advantage about decision making. Because if once a firm makes a wrong decision, it is fatal. They also need to consider about growing in size. They need to consider is it profitable or not about the growth. If it is not profitable, it is best to let the firm to remain small. It is easier to manage small firms.
References:
http://www.investopedia.com/terms/e/economiesofscale.asp
Complete economics for Cambridge IGCSE and O-level, Dan Moynihan and Brian Titley, unit 4.3 the growth of firms pg. 240 – 246
http://www.studymode.com/essays/What-Are-The-Advantages-And-Disadvantages-748545.html
Originality:
100% unique (http://smallseotools.com/plagiarism-checker/)
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Economies of scale are the advantage of costs that increases as the output increases. Economies of scale arise because the number of goods produced and the average cost per unit of output has an inverse relationship. The more the quantity of a good produced, the lower the average cost per unit of output, because these costs are shared over a larger number of goods. Economies of scale may also decrease variable costs per unit because of operational efficiencies or external factors. Some firms are able to make exorbitant levels of profits through this economies of scale.
ReplyDeleteKnowing the theories of economics is beneficial for a firm in order to succeed in the ever-competing market of their industry. Financially, understanding the theories of economics bring benefits to the firm such as profits or other non-monetary goods or services. Theories of economies include economies and diseconomies of scale, demand and supply, calculation of costs and revenue, long term and short term strategies, etc. Firms with the advantage of having economies of scale are usually large companies with huge demand and therefore a huge production line, if not mass production. Large companies have enough demand for them to have purchasing power to buy bulks of their input, such as engines for automobiles, or plastic coverings for speakers. Suppliers give discounts for bulk purchases simply because it is cheaper for them to make one huge delivery rather than many small deliveries over the same period of time. Some firms plan to make more profits by first making losses in the short term, which can make more money in the long term. Employing many workers or installing many new equipments in a short period of time will cost the firm money, which is unavoidable, but if planned, organized, and accomplished correctly, it can benefit the firm by having more economies of scale, and enable them to increase output, revenue, and ultimately profits in the long term. An example of this is Honda Motorcycle and Scooter India (HMSI), which is said to be sacrificing profits in the short term in order to expand and build scale for a greater amount of revenue and profits in the long term. Having the knowledge about theories of economics can enable firms to contain losses that are unintentionally made. A good firm, if started to create losses instead of profits in the industry of goods, may decide to slowly cut costs if the demand for their product doesn’t sufficiently and indirectly cover their production costs. As we know that demand and selling price have a directly proportional relationship, when the demand reduces down to the point of loss-making, the firm can choose to gradually cut costs in order to regain demand from the less wealthy consumers or from the grasp of competitors.
This comment has been removed by the author.
ReplyDeleteWhen a company gets bigger in size, it bears a greater risk of overgrowing. When a firm grows into a large company, it can significantly benefit from economies of scale in terms of purchasing, marketing, financial, technical, or risk bearing economies of scale. But it is a fact that any firm can grow too much, and suffer from diseconomies of scale, including management, labour, and agglomeration diseconomies. When a firm knows theories of economics, they have the ability to better contain any losses they make, but it must be noted that not all firms can succeed even though they have specialists and strategists that are experts in theories of economics. An example of a firm that got an extremely opposite result than what they expected is Nintendo® and their Wii U™. Based on Bloomberg (.com), Nintendo projected a 50 billion yen profit for their sales of the new Wii U, but in reality, they got a terrifying 25 billion yen worth of losses, and is now desperately trying to survive and minimize the loss by searching and possibly entering other markets, but has yet to be confirmed.
ReplyDeleteTo conclude what we have discussed, having the knowledge of theories of economics can benefit firms in increasing profits or revenue and containing mild or even extreme losses, but it must be noted that not every firm can do this even with the knowledge of the Theories of Economics.
Ivan Alexander 8A
Reference:
http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
http://www.investopedia.com/terms/e/economiesofscale.asp
Complete Economics for Cambridge IGCSE® & O Level (second edition) by Dan Moynihan and Brian Titley
Originality 100% Unique Content by http://smallseotools.com/plagiarism-checker/
Economics of scale is the cost advantages that enterprises obtain due to size. There are two types of economics of scale. First is internal economics of scale that mean increase in production and reduce in cost per production or we can define as large scale of production/ mass production. For example; a car company increase it production from 3 cars/ year to 4 cars/ year so the car company can pay less for the car material because when they buy more steel from the steel company the car company get a big discount from the company. The 2nd type is external economics of scale. The external economics of scale is The lowering of a firm's costs due to external factors. External economies of scale will increase the productivity of an entire industry, geographical area or economy. While there are 2 types of diseconomics of scale. The example are external diseconomics of scale the and internal diseconomics of scale.
ReplyDeleteThe advantages of the economics of scale is they can increase profit higher but there are a high risk of loss. The example is the Nintendo Co. got a 55 billion yen profit previouslyThey can make loss if the production cost/unit is higher than the production. The other advantages are reduction of average costs of production. Firms can afford to invest in expensive and specialist capital machinery because they have more profit to make for capital. businesses can split complex production processes into separate tasks to boost productivity because now they have many specialized employee than before. Firms can spread its advertising and marketing budget over a large output because that is part of marketing economics of scale. the firms can buy a bulk material at negotiated discounted prices because they buy more material like in the 1st paragraph. Large firms have large access of credit facilities and borrowing money because they are reliable and the bank believe that they can pay the debt.
The disadvantages of diseconomics of scale are they can get many loss. For example the Acer company. Acer Posts Record Loss After Making Further Write Offs. They get a net loss of $20.g billion because the company’s biggest mistake was to invest too early in Ultrabooks . the new thin and light ultrabook. The CEO of Acer said that the ultrabook is mimicking apple product< macbook. The other example is the Nintendo Co. the creator of the famous game like Donkey Kong, Mario Bros, Pokemon, and the Legend of Zelda got a 25 billion yen loss annually because the demand of the WiiU is low. The Nintendo Co. previously got a 55 billion yen profit. The other disadvantage are less supervision because the produce can’t see the detail of the goods because there are many goods to produce so they can’t supervise the employee. The other disadvantages are Possibility of war. Big producers like to sell their good to the interational market, they try to capture the consumer by fair and foul means.
In conclusion the producer not always do the large scale production because they can got complain by the employee and their family because they must give the employee overwork and many things. The firms must watch out for the disadvantages of large scale production because there are many negative effects of the large scale production.
Reference :
http://www.investopedia.com/terms/e/externaleconomiesofscale.asp
http://www.bloomberg.com/news/2014-01-17/acer-posts-record-loss-after-making-further-write-offs.html
Wikipedia.com
http://www.ask.com/question/what-are-advantages-of-economies-of-scale
http://www.bloomberg.com/news/2014-01-17/nintendo-forecasts-net-loss-on-stagnating-sales-of-wii-u-games.html
http://www.yourarticlelibrary.com/economics/the-advantages-and-disadvantages-of-large-scale-production/10901/
by galen. originality 93% tq
Firstly, economies of scale means the increase in production units and decrease in average cost. Diseconomies of scale is an increase in average cost and also increase in the loss of the company for example the Panasonic company, they quit making plasma TV and put it for sale next year because of its huge losses they received in that year.There are many reasons why this can happened. Diseconomies of scale can be experienced by firms that tries to expand the size and scale of production quickly and too much. There are several benefits but also disadvantages in increasing the scale of production in a firm.Scale of production can be increased in two ways which are internal and external. Internal refers to large scale of production or mass production.The example of external economies of scale is large firms have access to a skilled workforce.
ReplyDeleteThe advantage of large scale of production is that it can afford more supplies such as materials or components needed to make their product with low cost of production or purchasing economies.The example of large scale of production firm is The Reliance Group in India.Then, specialized workers will work there as it they can produce more output with less resources and creates better quality product.Aside from that, it also reduces the loss of the firms and increase the profit of the firm helping it to achieve profit maximization which it is the most important objectives for most of firms.Other benefit is financial economies, it means that bank will consider lending money to large firms less risky than lending to small firms as it has more assets and financial is more secure compare to the small ones.Large scale of production companies have more customers and more markets, in this way they are able to reduce the risk of losing customer in their business or fall in the demand of product sold.
There are some disadvantages of large scale of production too, this includes the diseconomies of scale, when the owner expand its firm too far in some point it will create a loss, the average cost will increase but the productivity may fall, this is dangerous as it can effect the financial of the firm because it gets lesser profit than before.For example China probes the Hong Kong TV loss at one year as the shares fell 3.9% to close.Diseconomies of scale can be caused by ineffective communication, the communication slows down and may ended a miscommunication in the firm.Second, is reduced in motivation of workers, when workers feel unappreciated in large firms, their productivity falls and thus cost of productivity rises.If the loss of the firm keep on increasing it may lead to bankrupt or the firm will be closed.
In conclusion, increasing scale of production can also lead to bad effect aside from the advantages it can get in the business.There are some disadvantages such as the decrease in productivity, increase in average cost and the firm will receive lesser profit by expanding its firm too much.
References:
1. http://www.businessweek.com/news/2014-01-05/china-mobile-to-start-internal-probe-of-hong-kong-unit-sale
2. http://www.bbc.co.uk/news/technology-24458805
3. http://wiki.answers.com/Q/What_causes_Diseconomies_Of_Scale?#slide=1
4. http://www.bbc.co.uk/schools/gcsebitesize/business/production/productioncostsrev3.shtml
5. Complete Economics for Cambridge IGCSE&O Level Second Edition, Brian Titley and Dan Moynihan, Unit 4.3, section 3 pg.242-244
Originality: 89% (plagiarisma.net), 100% Unique (smallseotools.com)
Felicia Angeline 8A
Economies of scale (ES) are the cost advantages that a business can exploit by expanding their scale of production. The effect of economies of scale is to reduce the average (unit) costs of production. Economic of scale can make product or service with two type production that is large scale production and small scale production. Small scale production is production with less raw material, less capital, less number of person, etc, example house material, chair, television, etc. large scale production is production with large raw material, large capital, large number of person, etc, example clothes, hand phone, shoes, socks, etc.
ReplyDeleteAdvantage of large production:
1. internal economies arise within the firm because of the expansion of the size of a particular firm.
2. external economies arise with the expansion of the industry.
3. Division of Labor is the large scale production is always associated with more and more division of labor.
4. the large scale production always makes use of machines.
5. the large scale industries can produce more goods.
6. With an increase in the size of the firm, the cost of management is reduced.
7. The large scale production gives many types of economies.
8. Cheap and Easy Loans
9. With the development of large scale production, there arise many small industries which use its by-products or supply inputs to it.
10. The production of standard goods is possible on account of the large-scale production.
11. A big concern can afford to spend large amounts of money on advertisement and salesmanship.
12. A large concern usually buys things in large quantities and therefore, at low rates.
Disadvantage of large scale economic:
1. The large scale production is accompanied by all the evils of the factory system like over-crowding, density, pollution, bad morals, etc.
2. The large scale organization results in over production at times, so demand cannot be properly estimated.
3. Less Supervision
4. The large scale production results in the localization of industries.
5. Class Struggle
6. Dependence on Foreign Markets
8. Lack of Adaptability
9. Individual Tastes Ignored
10. Unequal Distribution of Wealth
Samsung is one of very famous firm and get a big profit because they have a high technology, many customers, high quality of brand, trusted, have a ability to take attention many person ,etc.
Nokia is the famous firm but they get big loss in 2012 because they cant make another type like a tab and they don’t have technology like android, etc.
Theory economy is spending in the economy and its effects on output and inflation. That’s also can be said a theory of commercial activities such as the production and consumption of goods.
Conclusion : there is many an advantage and disadvantage from a large economic of scale, and they are divided into small scale production and big scale production.
Reference:
www.investopedia.com
www.freebusinessdictionary.com
originality : 85%
Economies of scale is the increasing in production unit and decreasing average cost. While diseconomies of scale is the increasing in production where increase the average cost.
ReplyDeleteDue to the exorbitant level of profits and losses, here are some reasons. First, the Quality Control (QC) is running well or not. If it's running well, we can decrease the losses because there will be no products that will be rejected. Second, considering sell-off to control losses. So, if the product isn't acceptable, don't keep going with the business because it can increase the losses of firm. Third, marketing promotion's budget on control or under control. Because usually this part is wet area, means corruption usually happens here. So it can increase the losses of the firm itself.
As was the case with Nintendo Co, the maker of video-machines suffered annual loss around $240 million because of tepid demand for the Wii U. This situation push its company think about a new business structure, by given the expansion of smart devices, expand from the current hardware business model because the video-game market has moved into smart phones and tablets. Same thing happened to Panasonic, the Japanese electronics company which produces Plasma TVs, made a loss of 754 billion Yen in its last financial year. Some factors are the cause, such as the plasma screens which use electrically charged ionized gases, tend to use more electricity than other screen technologies, although are praised for their brightness, deep blacks, and rich colour displays. Also, plasma TVs have lost most of the advantages they had to LCD in the last two or three years. As well as Acer, the Taiwanese personal computer maker which last year recorded huge losses which amounted $ 685 million. According to the AcerChief Executive Officer Jason Chen, the company biggest mistake was to invest too early in Ultrabooks-thin, light note books promoted by Intel Corp. And Mimicking Apple Inc.s MacBook Air. He add, Acer acknowledge missteps on the past on resources allocation , and the over expectation of Ultrabooks and Notebooks with touch panel. Although the products were leading in design, the did not accurately to fulfill market needs.
Extreme policy made by Sony, the company that manufactures of Vaio due to the falling sales line thought to have pushed division into loss, and sale to Japan Investment Fund Partners for up to 50 billion yen ($490m). The move comes as PC manufacturers have seen increasing problems making profits from the business in the face of shrinking consumer demand and thinning revenues and profit margins. Under the plan, Sony would sell its PC business to a new company to be established by the fund and have a small stake in the new firm. Sony has been struggling with broad challenges to its profitability as the TV, console and smartphone market see increased competition. Anyway, The PC remains an important part of the ecosystem and ditching the business will leave Sony with a hole in its proposition. Hence, what it should actually be doing is investing in its PC proposition with to gain market share while everyone else is distracted and looking for the exit. The best of both worlds will be an arrangement where someone else manufactures the devices but where Sony maintains control over hardware design and the user experience. A straight sale of PCs and focusing just on smart phones and tablets is a recipe for failure."
ReplyDeleteOtherwise experienced by the World Food Industries, while the world has feared of an obesity epidemic, instead its saw it as an opportunity. In general, We think of "obesity" and "dieting" as polar opposites, but in fact, there is a deep, symbiotic relationship between the two regarding business opportunity. When obesity as a global health issue, the food industry sat up and took notice. But not exactly in the way you might imagine. Some of the world's food giants opted to do something both extraordinary and stunningly obvious: They decided to make money from obesity, by buying into the diet industry. Kind of the smart way to enrich business opportunity.
On conclusion, firm can be benefit with theories of economics in increase profit, but on another hand it can contain losses.
85% unique content
Deletereferences:
1. http://finance.yahoo.com/news/enbridges-adjusted-profit-misses-estimate-131158752.html
2. case studies stated above
As a firm grow, it would need some ideas and theories on how to manage it. First off, it would need an idea of production method. The rate of successfulness of a product grows as the business grow. When market share explode, the firm must take step ahead to make more of the products. This requires large capital and labour. The best method for this firm is large scale production.
ReplyDeleteMass production, or large scale production, is a production that includes heavy amount of production in certain amount of time. This production usually occurred on standardized products, like aircraft or anything that is bought in large quantities. Large scale production includes making copies of the exact original product that is first launched. This is done to multiply the amount of the wanted product so everyone could have it.
Large scale production requires a lot of raw material and high portion of energy and workers. That is why these activity is called capital intensive or energy intensive. This means that this activity requires lots of labour and machinery that is usually expensive, plus the price of the raw materials, which would need the presence of assurance that the products is to be worthy and a success to get profits.
This method of production is best used on fast growing firms which would need more input to produce their highly desirable product which would cause an explosion in profit and market share.
There are about three types of industries, primary, secondary, and tertiary. But those firms who specialize in the more knowledge based service is called the quartenary section. Economists would sometimes join up to create an organization that involves on research and observation of an economy of a country. This organization is much like scientists joining up to create an organization like NOAA or others. These organization sometimes provide information to the primary sectors, on how to grow plants, etc.
This works the same as for the economist organization to the secondary sectors which produce products that is sold to gain profits. These economists would observe the market share, of what the customers would want right now or how would the economy manage to keep the price low on such raw material-based products. A true entrepreneur will take risk no matter what outcome it would cause. This includes bad outcomes.
Risk bearing firms are those who will take risks at no matter costs it would take. The bad outcomes from this action usually leads to loss on profits and eventually lead to business bankruptcy. A large firm may have more customers who will want to buy their product. Sometimes they come up with a new idea of product. This would include buying newer and possibly expensive raw materials. The process may be more expensive than the previous product, like it will require new machines. Sometimes if this comes up, it will leave to the owner’s choice of either taking the risk and see if the product will be a success or just leave it to prevent losses.
So profits and losses are usually caused by many things, one of the major ones are risk-taking firms. And these firms may find theories of economies handy, especially on what customers wants or what type of product that would be successful at the moment.
References :
1. Dan Moynihan and Brian Titley (2012) Complete Economics for Cambridge IGCSE and O Level, p. 242-244
Originality : 100%
Jonathan 8A
Economies of scale is the increase in production and lower the average costs, which will make an increase in profit. Diseconomies of scale is the increase in production and an increase in average costs. There are two types of economies of scale, which are internal economies of scale and external economies of scale. There are two types of diseconomies of scale too, which are internal diseconomies of scale and external diseconomies of scale. Internal economies of scale are like financial, managerial purchasing, marketing, and risk bearing. And external economies of scale are like trained workers, raw materials, infrastructure, government’s rules and regulations, and ancillaries. It’s good to have an increase in economies of scale because they can buy purchases with discount from the suppliers, it can reduce it costs by buying their own vehicles to distribute their goods, borrow money easily in the bank, able to research and develop new products to increase the efficiency of their production, and it can reduce risk ( example : Unilever ). Internal diseconomies of scale are like managerial, labour, rise in CSR, and divorce of real promoters. Last, external diseconomies of scale are like traffic and government’s rules and regulations. If a firm is in diseconomies of scale, it will be hard for them because managing it can be difficult, decision making will be slowed down, labour diseconomies, and it is difficult to continually attract new customers. Some example of firms that fall to diseconomies of scale are Panasonic and Mozambique’s Mozal aluminium smelter ( when it wanted to expand it operations and increase output but was unable to do so because of a shortage of electricity in the country). There are relationship between cost and economies of scale, a firm is fixed cost + variable cost. In a short term run, it is fixed cost + variable cost, but in long run term, it is only variable costs.
ReplyDeleteThere are two types of production, large scale production and small scale production. When a firm expands the scale of production it has chance to become more efficient and lower its average costs of production. Average or unit costs can be reduced as a firm grows in scale because it gives the management or owners a chance to reorganized the way the firm is run and financed. The example of firm that has an increase in scale of production is The Reliance Group in India. Scale of production can be increased in two ways which is internal and external. Internal growth involves a firm expanding its scale of production through the purchase of additional equipment, and external growth involves one or more firms joining together to form a larger enterprise.
Some advantages of large scale production are division of labour, the use of machines, more production, ancillaries industries, and low cost production. But there are also some disadvantages like there will be less supervision, dependence on foreign markets, and individual’s taste are sometimes ignored. For example like Panasonic, that firm is now bankrupt.
It’s good to be a large firm, but sometimes remaining small is also a good idea. If it remains small, it will be easier to manage and no diseconomies. So in CONCLUSION, it is not always good to increase the scale of production, just remain small to be safe, and increasing the scale of production also have some disadvantages.
References :
1. http://www.yourarticlelibrary.com/economics/the-advantages-and-disadvantages-of-large-scale-production/10901/
2. Complete Economics for Cambridge IGCSE & O Level
3. Notes
Audrey Tan 8A
Originality : 97% Unique Content ( http://smallseotools.com/plagiarism-checker/ )
Economies of scale is the advantages you get from increasing your scale of production.It can be achieved by large firms that decreased their average cost by increasing their production scale, which will lead to more profit.It can benefit a firm but it can also create a loss for some firms.
ReplyDeleteFirms that achieve economies of scale will have the power to do a lot of things.They can employ highly skilled workers to earn more money for the firm.They can take high-risk options because they have a lot of assets they can count on.They won't directly fall to bankruptcy if they fail.The more a firm purchase raw materials, the cheaper the price, and the more the firm is able to buy.A firm can benefit from other firms and achieve economies of scale, 1 example is the food industry, a lot of firms used the fact that a lot of people is obese to create more profit.They started producing foods that can help an obese in their diet.It will surely sell more.They took advantage of the firm that sold these addictive food causing more people to get obesity problems.
But economies of scale can bring you disadvantages, it can lead to a loss for your firm.Because for a firm to achieve economies of scale, it either has to be large and capable to produce in a large scale or it's brave enough to lower the quality of their raw materials to decrease their average cost and buying more of those cheap materials to increase their output.This can lead to a loss because people won't buy low-quality products.Also, some firms sacrifice the price of their products to reach economies of scale, they increase the price of their products to cover up the loss they will get to increase their scale of production, and if their market is small, and they have too much output, they will end up in a loss.And firms that suffer these have no other choice but to stop production or they will end up losing more.
The conclusion is that achieving economies of scale is good, but sacrificing the quality and price of your products to achieve it can be dangerous.But still, economies of scale is important to large firms.
Jovan Pan 8A
References:
http://www.theguardian.com/lifeandstyle/2013/aug/07/fat-profits-food-industry-obesity
http://www.bbc.co.uk/news/technology-24458805
Dan Moynihan and Brian Titley (2012) Complete Economics for Cambridge IGCSE and O Level, p. 242-244
Originality:98%
First of all, economies of scale means increase in production and reduce the average cost per unit where they can increase their profit. There are 2 types of economies of scale, such as internal economies of scale and external economies of scale. While diseconomies of scale means increase in production unit with the increasing of the average cost per unit, where they will increase their losses. Usually by increase its production, average cost will also be increase, but by doing economies of scale, they can get the exorbitant level of profits. This makes some of the firm get benefit with the Theories of Economics in improving profit margins and reducing its cost which reduce losses.
ReplyDeleteTheories of Economics is very useful for firms in order to improve their profit margins. Internal economies of scale and external economies of scale are the theorie of economics. Usually large companies use internal economies of scale because they want to achieve the exorbitant level of profits. I agree that theories of economies such as internal economies of scale because they can bring advantage for the firm, such as, the finance economies of scale, with the greater size, they ca have better finance, managerial economies of scale also become one of the benefit, because they can hire best people or skilled people to work in their firm, purchasing ecoomies of scale means when we buy larger quantities, we will have larger production and can make our profit increase, marketing economies of scale, risk bearing, and technical economies of scale also become the advantage for the firm which can make them increase theirprofit.
But, beside of its advantages, theories of economies also bring disadvantage, which is the diseconomies of scale. Managerial diseconomies of scale, labour diseconomies, increase CSR (Corporate Social Responsibility), and divorce of real promoters are the example of the internal diseconomies of scale. As an example of further evidence of potential alpha decay as FUM grows, in an as yet unpublished work(3), Mercer recently examined the FUM size/implementation cost issue for Australian small cap managers. As a relatively less efficient market, the ex- S&P/ASX100 universe is an important source of potential alpha for many investors (with the median excess return in the Mercer Australian Small Companies Survey of 7.5%pa before fees over the 7 years to August 2006). The Mercer research examined the portfolio liquidity of 33 institutional small cap managers, 13 of which were currently closed to new business. Based on each manager’s actual stock holdings as at 30 June 2006 as recorded in our Global Investment Manager Database, we estimated the number of days trading a manager would need to liquidate their portfolio or trade back to benchmark, in this case the S&P/ASX Small Ordinaries Index. We assumed no more than 20% of the average daily trading volume for any stock was able to be transacted in any one day. Mapping manager FUM as a proportion of market cap against these simple liquidity measures showed a definite link between increasing FUM and one of the most significant (and hardest to measure) indirect costs: market impact.
In conclusion, it is benefit for firms that have theories of economies, because they can get the exorbitant level of profits, which can increase their profit margins, but diseconomies of scale also can make them get the exorbitant level of losses.
References :
1.http://www.feal.asn.au/multiattachments/2320/DocumentName/FEAL_Case_Study_Diseconomies_of_scale_in_investment.pdf
2.notes
3.Complete Economics for Cambridge IGCSE & O Level
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vienetta christina 8a
Many giant companies are known for their large profit margins. Other companies has been loss-making, but are still standing. Profit-making firms are supported by the economic theory the economics of scale. Economics of scale explains that average cost or cost per unit is decreased as the volume of output increases. Assuming that the market price of the goods produced remain equal, then firms would earn higher profits by doing so. Large companies may intentionally lose profits to expand their operations, such as Honda India building scale through launching new products and promotion. Firms may also make losses because of diseconomies of scale, which is defined as an increase in average costs because a business grows too large.
ReplyDeleteFirms are able to make more profits when they achieve economies of scale. Reducing production costs can be done by efficient use of materials, labour, energy and transport. Using raw materials efficiently will reduce costs of purchasing those resources and has a positive effect on the environment. For example, an analysis done on Umicore, a Belgian company producing batteries by recycling cobalt and nickel, shows that the recycling project resulted in 51.3% of natural resources savings. Labour costs can be made efficient by managing the number of employees to the optimum level - there will not be a lack or excess of employees, pushing labour costs to a minimum while still maintaining an adequate labour force. Some industries, such as large manufacturing firms, need plenty energy for their machines to run. Energy costs will be very expensive. This can be avoided by shutting down machines when they are unused. Efficient energy use is the goal to use the least amount of energy to produce goods and services. Over 45 percent of the fuel used by US manufacturers is burnt to make steam. The typical industrial facility can reduce this energy usage 20 percent (according to the US Department of Energy) by insulating steam and condensate return lines, stopping steam leakage, and maintaining steam traps. Transport costs can be reduced significantly by locating factories close to main roads and transport routes. Firms will achieve economies of scale when they grow larger and are able to manage the new size of the firm. Increasing production will reduce average costs because as more goods are produced, it has been proven that in the long run, total costs are decreased. This is the reason why large companies do mass production, such as Samsung. With mass production, the cost of research and development and cost per unit will be cheaper. Firms can also increase profits when they know what goods or services are demanded in the market, and how much consumers are willing to pay for them. This can be done by market research. Successful companies start off as those being able to notice what the market wants. For example, Snapchat has been such a success because consumers are demanding for an application where they can send photos without worrying they would be passed on to strangers, and Snapchat provided it.
However, sometimes diseconomies of scale happen when firms grow too big. Instead, they will make losses. Big firms tend to lose control over expensive costs, such as costs of office headquarters, large factories, machinery, managing and marketing costs. There might also be a chance that investment of new capital is ineffective and the firm might be left with under-utilized capital. Very large companies, especially multinationals, could not monitor all the activities happening inside the organization, such as the quality of output and productivity of labour, because they are very costly. Therefore, miscommunications between multiple locations are very likely. When a message must be passed through many layers of organization in different places, information may easily be changed or diluted.
Another cause of diseconomies of scale is the complexity of the organization. “The Economist magazine states that complexity in big organizations can negate cost savings, causing diseconomy of scale. Such complexity also dissuades passion in business, according to the famous professor of management Frederick Herzberg, who said such passion was more important than sheer numbers.” – (Jason Reeher, eHow). Management politics may also happen inside the organization. For example, a manager might be afraid of losing his position and intentionally promote an employee with inadequate skill to prevent him from losing the position to someone else more capable. This will cause the firm to operate less efficiently. Losses can happen when firms fail to predict the products the market demands. Panasonic has decided to stop producing the loss-making plasma TVs because they are not profitable. In its last financial year, Panasonic has made a loss of 754bn yen (£4.85bn), following a 772bn yen loss the previous year.
ReplyDeleteIn conclusion, firms can earn more profits and contain losses when economics of scale is applied. However, firms must not grow too large for the management to control or diseconomies of scale will happen. Firms must also be able to discover what products the market needs and wants in order to earn profits.
References:
http://www.c2cn.eu/gph/li-ion-battery-recycling-example-resource-efficient-use-raw-materials
http://en.wikipedia.org/wiki/Efficient_energy_use
http://tutor2u.net/economics/revision-notes/as-marketfailure-scale.html
http://www.ehow.com/about_5158325_causes-diseconomies-scale.html
http://www.bbc.co.uk/news/technology-24458805
Last accessed 16/02/2014
Originality: 86%
First of all, economies of scale is a proportionate saving in costs gained by an increased level of production. Which every mergers may lead to economies of scale. Or, economies of scale are the cost advantages that enterprises obtain due to size, throughput, or it can be called as a scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. And, Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise. For example, a large manufacturing facility would be expected to have a lower cost per unit of output than a smaller facility, all other factors being equal, while a company with many facilities should have a cost advantage over a competitor with fewer.
ReplyDeleteThese are the advantages of large scale production, first, they can increase their profit easily, by increase their production and decreasing the prices. Second, it can get more materials or resources to make a product with good quality but with lower prices. Third, they can reduce their cost because it does not have to pay the profit margin of another supplier. Fourth, they can borrow money with lower interest because they more financially secure and can offer more assets, fifth, they have financial resources available to invest in specialisized materials or tools. Sixth, they able to reduce the risk to its business of fall in demand for one of its products in one of its markets, for example Unilever company. They has interest in the production on other product but actually they are a soap company.
The disadvantages of large scale production is that, first, it's hard for them for managing a large firm because they have many locations, which producing different products, which it's called as a management diseconomies. Second, they may experience shortages because they need vast quantities. Third, they unable to attract enough workers because they have to spend more money for wages. Fourth, their workers may be bored and become de-motivated and less cooperative. Fifth, they are hard to attract more consumers because their product are to simple and standard.
In conclusion, increasing on a scale of production is also having many disadvantages, which they will get less profits, and it's good for them to achieve the economies of scale, but they have to decrease their price of their product to get more profits and consumers.
References :
1.http://en.m.wikipedia.org/wiki/Economies_of_scale
2. Complete economies for Cambridge IGCSE & O LEVEL
Originality : 93%
-Celia Pricilla Mesatania 8A-