Question

QUESTION TWO: When economies of scale are substantial, larger firms can achieve lower average costs of production or distribution than their smaller rivals, giving the larger firms a permanent competitive advantage in some industries. By the same token, when diseconomies of scale are operative, larger firms can suffer a greater loss when compared to their smaller rivals. Smaller firms are then able to translate the benefits of small size into a distinct competitive advantage.” In terms of the above statement:

2.1. Explain one (1) factor that contributes to smaller firms having a competitive advantage over larger firms.

2.2 Discuss one (1) source of economies of scale that provides large firms with a permanent competitive advantage over their smaller rivals.

Answer 1

1) There are many factors which contribute that a smaller firm gas competitive advantage that large firms, one of them is small amount of loyal customer. Though increasing customer leads to have more revenue but consumer loyalty is another important aspect. A small business is frequently much closer to their customers than a large firm with a large number of customers.

2) Economy of scale helps reduce cost in production which mainly helps large firms to gain a permanent competitive advantage over their smaller rivals. With the help of Internal economics of Scale large firm can increase their production in a huge volume. One of the internal economics of scale is Technical Economics of scales which increase the efficiency of production of a firm but cost falls 70% to 90% , Larger firms can adapt new technologies more quickly and more efficiently than smaller one that give them permanent competitive advantages