Concept of Indivisibility
A very important source of economy in a big concern arises from the use of aa indivisible factor of production. This concept divisibility requires careful understanding. Just tbidk of a hostel kitchen. It must have a minimum equipment of utensils and secants, e.g., it must have at least one cook and one boy servant This is the indivisible factor. Now if this equipment can satisfactorily serve fifteen students, it will be obviously uneconomical to have only ten students to serve. Charges per head will be unnecessarily higher and the cook and the servant will remain idle for some time. A large group of students will keep them fully employed and get the utmost out of them. Similarly, a professor is indivisible. Suppose be can effectively impart instruction to a class of students. In a small college, where the num . class may be smaller, the authorities will not be making full use of him.
Several of our industries. notably iron and steel and the jute industries, are generally working below capacity, which is obviously wasteful. The indivisible equipment is not being fully employed. The point, therefore, is that when production is carried on a large economically. (iv) Increased specialisation. Scope for specialisation is also available in a large plant. Specialization and division of labor are highly advantageous. For instance, only in a big school, we can have specialist teachers.
Managerial Economies. These economies arise from the creation of special departments or from functional specialisation. They also result from the delegation of routine and detailed matters to subordinates. The managerial expenses can be reduced by increasing the size of an establishment or by grouping a number of establishments under one management. In a small factory, a manager is a worker, foreman and a manager all rolled in one. Much of his time is wasted on things having little economic significance. In a big concern, such jobs can be delegated to junior employees and the manager confines himself to jobs which bring more profits. This is vertical division of labour. But there are possibilities of horizontal division too when each department is placed under an expert. The job one more efficiently and more economically. All this is possible when production is carried on a large scale
Financial Economies. These economies arise from the fact that a big firm has better credit and can borow on more favourable terms. Its shares enjoy a wider market, which encourages a pro pective investor. This only shows superior bargaining strength and does not necessarily indicate greater efficiency.
Risk-bearing Economies. A big firm can spread risks and can often eliminate them. This it does by diversifying output. Diversification imparts it strength and stability and makes it less vulnerable to changes in commercial fortunes. There is also diversification of markets, of sources of supply and of processes of manufacture