Unit 5: Production

Objectives Describe the effects of the growth of small firms. Explain the difference between ‘economies of scale’ and ‘diseconomies of scale’ Describe the different types of economies of scale Identify types of economies of scale after analysing various scenarios Outline factors of diseconomies of scale after analysing a case. Differentiate between mechanization and automation.

TOPIC 1: EFFECTS OF Growth

Organizational Structure Growth Effects Capital Organizational Structure Scale of Production Use of technology Labour

Growth Effects As sales increase, the business can change from a domestic level of production to surplus and export. The business will experience benefits as well as disadvantages from this growth.  

Economies of Scale When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale (ES) are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs.

Economies of Scale in a nutshell Economies of Scale is all about finding ways to save on cost in all aspects of the business and while producing more goods or services.

Economies of Scale Technical Economies Financial Managerial Marketing INTERNAL ECONOMIES EXTERNAL ECONOMIES Technical Economies Financial Managerial Marketing Purchasing Risk Bearing Specialist Workers Specialist training Supporting firms The good reputation Research and development.

Economies Explained Managerial Economies – when a firm expands its output or enlarges the scale of production, following the principles of division of labour and specialisation to create various departments. Example, Sales, Marketing, Finance, Production, etc.

Economies Explained Technical Economies – when a firms increases its production by using large machines, reducing the need of manual labour and high labour cost. Financial Economies – Interest rates are often lower for larger firms than small firms; easier to get loans.

Economies Explained Purchasing Economies - When businesses make large purchases or borrow a lot of money, unlike small purchases and loans, they get special discounts.

Economies Explained Marketing Economies- promotional and advertising campaigns are one of the priciest things in business. However, these costs are fixed and if the organization decides to grow, from time to time, it can reduce the overall money spent on marketing.

Economies Explained Risk-bearing economies - When a company is large, it becomes possible to produce several products that may also be unrelated. For instance, Google manages several products like Gmail, search engine, Google Drive, Google AdSense, Android, etc. If any of them fail, for example, let’s take Gmail, it won’t be a disaster for Google because they still have several chains of income.

Examine the scenario and state the type of economies of scale enjoyed by the firm. Carib Cement Company a private limited company became a public limited company in 1990. The increase in capital meant that the company was able to change its operation using more mechanical operations. Production increased tremendously. Technical Economies Managerial Economies Risk-Bearing Economies Financial Economies Marketing Economies Purchasing Economies

Examine the scenario and state the type of economies of scale enjoyed by the firm. Carib Cement Company Limited was able to enter into numerous lease arrangements with Caribbean Governments for the mining of limestone and, thus, able to obtain limestone in bulk. Technical Economies Managerial Economies Risk-Bearing Economies Financial Economies Marketing Economies Purchasing Economies

Examine the scenario and state the type of economies of scale enjoyed by the firm. The Company is also a member of the Association of Cement Producing Companies. This association advertises on behalf of all its members. Technical Economies Managerial Economies Risk-Bearing Economies Financial Economies Marketing Economies Purchasing Economies

Examine the scenario and state the type of economies of scale enjoyed by the firm. In order to purchase two more mixers, the company used its assets to obtain a large loan at a very economical rate. Technical Economies Managerial Economies Risk-Bearing Economies Financial Economies Marketing Economies Purchasing Economies

Examine the scenario and state the type of economies of scale enjoyed by the firm. The company is trading on the Stock Exchange and, therefore, the Stock Exchange Commissioner closely monitors its viability. Technical Economies Managerial Economies Risk-Bearing Economies Financial Economies Marketing Economies Purchasing Economies

Examine the scenario and state the type of economies of scale enjoyed by the firm. The increase in capital meant that the firm had more money to engage in research and development and enjoy specialist staff. The company became more efficient. External Economies- Specialist Worker, Research and Development

Diseconomies of scale

Diseconomies of scale As the company grows, it sees an increase in marginal costs when output is increased.

VS Diseconomies of Scale Economies of Scale Production Cost INCREASES REDUCES Output (Finished Goods) Output (Finished Goods) Production Cost

Using the information in the case study below, identify ANY SIX the factors of diseconomies of scale experienced by Alecon Georgeson and Sons Ltd. Alecon Georgeson and Sons Ltd is a manufacturing firm, which produces household detergent. Five years ago the firm began to manufacture liquid detergent. Today, the company’s production line includes body soaps, oils, lotions, cosmetics, industrial detergents and fragrances. To accommodate the expansion, divisional heads and specialists were employed for each department. The managerial cost increased by over 300 percent. The head office was moved to the city and the workers complained about conflicting information from head office that was given to them by their supervisors.

Scenario continues The company experienced its first industrial dispute last month when worked staged a ‘sick out’ because there were not paid their shift bonus time. Sales declined because their customers were of the view that the quality of the products was poor and there were too few distribution outlets. The company, therefore, engaged the services of a marketing firm to improve its image.   The company initially was the backbone for the community project but because of rapid expansion, the funding of the much-needed community was not forthcoming. At the same time, the company continued to pour all its waste into the rivers and streams forcing the environmental authority to issue two warnings to the company.

homework Explain the difference between labour intensive and capital intensive automation and mechanization. industries, give an example of an industry. Differentiate between mechanization and automation.

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