Economies of scale

As economies of scale (English economies of scale) defines the dependence of the production volume of the set of factors of production used in the production theory of business economics and microeconomics. The ( marginal ) returns to scale corresponds to the slope of the level of production function. It indicates the amount by which changes the amount of production, if the use of all factors of production ( marginal) is increased by a certain factor. In contrast, we speak of marginal productivity ( marginal ) with partial factor variation, so if only one factor is changed quantitatively marginal. Economies of scale are also distinguished from the composite effects ( economies of scope ) and density advantages (economies of density).

Types of economies of scale

One speaks of constant economies of scale if an increase in the input factors by a given factor, an increase in production volume by the same factor the result has ( scale elasticity is equal to 1 ), ie applies to the production function:

Such a result is to be expected as when a particular production technique is applied on a larger scale. To the same extent, as then increase the amounts of the input factors, so does the output quantity of the final product.

From positive economies of scale (also increasing returns to scale, economies of scale or mass production benefits ) occurs when the production volume increases more than the factors used ( scale elasticity greater than 1 ):

For corporate practice is particularly interesting is the case of the positive economies of scale, where the production volume decrease the marginal cost: At relatively low production levels of both the unit cost of a single produced copy or a production unit, and the marginal cost (ie the cost of the last produced unit ) is relatively high. Both decrease with increasing production volume. In mathematical terms:

These stand for the marginal cost and the amount created.

Positive scale effects, ie decreasing marginal costs, the economic explanation for mass production.

However, they also occur in the creation of many goods of network industries such as public transit or electricity. In industries with unlimited increasing economies of scale leads ( only in theory encountered ) perfect competition means that no production company can cover its production costs (which is also purely mathematically provable ). Therefore, there is in such industries often a (often state-owned ) natural monopoly.

Diseconomies of scale ( or decreasing returns to scale, diseconomies of scale) ( scale elasticity less than 1) occur for example in agricultural production, if with increasing use of production factors such as labor and fertilizer, no income increase by the same factor is possible.

Figure 2: constant economies of scale

Figure 3: economies of scale

Sources of positive economies of scale

Positive economies of scale can be attributed to savings in mass production:

• Use of non-human or non-animal workers: use of wind and water power, steam engines and internal combustion engines and electric motors.
• Benefits from the division of labor are decomposed in the complex processes into simple, easy to repetitive activities
• Falling average costs ( fixed costs to total costs decreases proportionally ). This point is controversial, however, because fixed costs imply by definition fixed production factors, while economies of scale, the variation of all factors of production is examined.
• Savings through the use of larger means of production, such as larger furnaces, tanks and pipes ( Double tube diameter only twice the material costs, but it has four times the cross-sectional area, and thus four times the capacity. )
• Larger quantities behave statistically uniform and are therefore easier to plan
• Rationalization through the use of automated means of production (industrial robots)
• Use of standardized parts and centralized reserve holdings
• Improved batch sizes vote at successive low-level
• Learning curve effects (this is not strictly speaking a scale effect, since it emanates from the constancy of the production technology, while it typically undergoes changes during the learning curve effect )
• Consolidation of operating locations

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Positive economies of scale can justify " natural monopoly " in conjunction with other factors. They are also called as a reason for companies concentrations. For positive scale effects a company can use a capital investment of € 2 million to produce more than two companies with an initial investment of € 1 million each. In the competition, therefore, is the great company through against the two small. If we write this trend continues, less and less, more and more companies are left in the respective sectors, whereby the competition is weakened within industries. But as competition is an important prerequisite for the efficiency of markets, so can be justified by economies of scale market failure.

The reason for mergers or joint ventures are, however, controversial, as economies of scale require a production facility. This would only be possible at the following specialization of the individual companies (rather than to produce two products in two companies, only one product per production site is produced in each case ).

Demarcation to the Economies of Density

Of the Economies of Scale Economies of the density (density advantage ) are clearly demarcated. While the economies of scale both on a scale elasticity greater than one ( economies of scale ), as may also be due to an operational size variation, describes the latter short-term, time-limited, moderate intensity, combined time - intensity moderate or quantitative adjustments. In contrast, the economies of density only from the economies of scale -dependent, since a constant operating size is assumed.

Demarcation to the Economies of Scope

While economies of scale relate to the efficiency benefits from the production quantity of a product, the term composite effects ( economies of scope ) shall include such benefits to be gained by the width or depth of the production (or services ) result. Practical examples are car manufacturers who expand their product range to include a model (Mercedes A-Class, VW Phaeton, etc. ), a fast-food restaurant, which offers specialty coffees in a delimited section of its stores ( McCafe ) manufacturer which existing products modified to include new to develop target groups ( Dove for Men, Nivea for Men, Beck's Gold, Coke Zero ), or call centers that handle hotlines for several different products.