COST OF PRODUCTION
Types of cost production
Economies of scale
Internal of economies of scale
- Labour economy specializing of labour can help increasing the efficiency of labour and cut the cost of production.
- Managerial economies every department is under the employment of professionals. It will increase the efficiency and cut cost
- Marketing economy large firm can buy product in bulk at a cheap price, This cuts cost of production. Small firm cannot obtain this benefit.
- Technical economies technology can improve production process. This is where the firm uses the capital (machines) in maximum usage.
- Financial economy the ability for firm to obtain funds or loan from others
- Risk bearing economy the willingness for the firm to bear the risks in the business
External of economies of scale
- Economies of government action firm grab the opportunity from governments actions. Example: subsidies
- Economies of concentration based on the location. Firm look for high concentration of customers in the area. This includes transportation and communication from the shop to customers
- Transportation transportation can cut cost because it can help develop more in distant places.
DISECONOMIES OF SCALE CAUSES
Some of the possible causes of diseconomies of scale are
- difficulties in control and supervision,
- slow decision making due to excessive size of administration,
- lack of employee motivation.
