Scale is amount of production a nation or firm achieves. This can apply to production of a product or the delivery of a service or experience. The following are illustrative examples of scale.A firm that enjoys economies of scale has falling cost per unit as they produce more units. This gives large firms in an industry a lower unit cost than smaller competitors. Economies of scale can also apply to services or experiences as they scale up sales volumes. For example, a theme park finds that its cost per visitor is $60 with less than 5,000 visitors but falls to below $10 with 50,000 visitors or more.
Economies of scale can be applied at the level of nations. For example, a nation that produces 25 million tonnes of wheat a year may have far lower costs per ton than a nation that produces 1 million tonnes a year. A nation has a comparative advantage in wheat if its opportunity costs for producing wheat are lower than its trading partners.
Diseconomies of scale is a firm that faces increasing unit costs as is scales up. For example, a gold mine that can cheaply mine 5,000 ounces of gold each year with escalating costs to increase production further.
Constant ScaleIn some cases, increasing sales volumes have no impact on your costs. For example, a small ecommerce seller who can only procure items at a fixed cost.
Niche ScaleIn an industry with strong economies of scale it is difficult for a small firm to compete directly with larger firms as they have lower unit costs. One strategy to deal with this is to offer a niche product or service. For example, a small tea shop that has far higher units costs than local supermarkets thrives by selling rare, specialty and high quality teas both in their shop and on ecommerce sites.
The other way for a smaller competitor to compete with a firm that enjoys greater economies of scale is to increase quality so as to charge a premium price. For example, a craft beer that incorporates local ingredients and traditions has a unit cost of $3 a bottle in a country where larger competitors have unit costs below $1. The craft beer competes on quality as they can't match the prices of the larger firms.
This is the complete list of articles we have written about economics.
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Everyday examples of economics.
An overview of trade wars with examples.
The common types of market conditions.
A complete overview of free markets.
The definition of macroeconomics with examples.
The definition of information economics with examples.
The primary forces that shape competition in a market.
A complete overview of traditional economies with examples.
The definition of a developed country with an overview of common characteristics.
A list of common business models.
The definition of creative services with examples.
The definition of business value with examples.
The definition of consumer to consumer with examples.
The definition of service economy with examples.
The definition of recommerce with examples.
The definition of service industry with examples.
A complete overview of the gig economy with examples.
The definition of club goods with examples.
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