Question

Since economies of scale are achieved when a company is able to produce a large volume of products (as you stated), does that mean that smaller companies can't ever have economies of scale? Why or why not?

Can a company grow so large that they move out of economies of scale and into diseconomies of scale? Why or why not?

Answer 1

Even small companies can have both internal and external economies of scale.Small companies can use their previous profits and income gained from turnover to boost their production and produce large volume of products.By investing their previous profits in hiring labour,purcahisng machinery,adopting new techniques of production even a small company can have access to internal economies of scale.Only those decisions should be taken which helps to decrease the cost of production.If such decisions are taken and implemented,then not only the companies but even small companies can gain economies of scale.Small companies cannot gain external economies completely but only to a certain extent.As its level of production is low,it doesn't require more labour or machinery and such companies cannot attain any redemption on customs and tax.One of the factor of external economies of scale is the competition from other companies. To overcome this factor, a small company should increase its reputation and should use innovative methods so that there will be low impact and less competition from other companies.Therefore small companies hav enough chances to gain internal economies of scale but there is less scope to gain external economies of scale.

Yes,a company can grow so large that they move out of economies of scale and into diseconomies of scale.When a company grows larger,then operating it becomes difficult.Such large companies cannot carry its operations easily as managing all the activities can create chaos.These companies become inadaptable as decisions cannot be easily implemented.Processing becomes more tough and time-consuming.There will be delay in operating branch companies and implementing new techniques and methods.Therefore in this way economies of scale can turn into diseconomies of scale.There are more chances for a large company to move into diseconomies of scale.