SCALE OF PRODUCTION
The scale of production has an important bearing on the cost of production. It is the manufacturers’common experience that larger the scale of production. the lower generally is the average cost of production. That is why the entrepreneur is tempted to enlarge the scale of production so that he may benefit from the resulting economies of scale. These economies are broadly speaking of two types: Internal economies and external economies, which we shall presently consider in some detail. But before shall give in a summary way the economies and economizes of large-scale.
Efficient of Capital Equipment. There is a large scope for the u ‘e of machinery which results in lower costs. A large producer can in an up-to-date and expensive machinery. He can also have his own repairing unit. Specialized machinery can be employed for each Job. The result is that production is very economical. A small producer, with a small market, cannot keep the machinery continuously working. Keeping it idle is uneconomical. A large producer can work it cor: tenuously and reap the resulting economies. Economy of Specialized Lab our. concern, there is ample scope. laborious. Specialized labor produces a larger and of better quality. It is only in a that every person can be put on the best perform. The large-scale prod e the be t out of every person.
Economies of Buying and Selling. While purchasing raw material and other accessories, a big business can secure specially vulnerable terms on account of its large custom. While selling its goods it can attract customers by offering a greater variety and by ensuring prompt execution of the orders placed with it. A lower rate of profit results in large sales and higher net profits in a larger-scale business,Economy in Rent. A large-scale producer a saving in rent too. If the same factory is made to produce a large quantity of goods, the same amount of rent is divided over a large output. This means a smaller addition to the cost per unit in the form of rent.
Economy in Rent. A large-scale producer a saving in rent too. If the same factory is made to produce a large quantity of goods, the same amount of rent is divided over a large output. This means a smaller addition to the cost per unit in the form of rent
Utilization of By-products. A big business will not have to throwaway any of its by-products or waste products. It will be able to make an economical use of them. A small sugar factory. for instance. has to throw away the molasses. whereas a big concern can turn it into power-alcohol. By utilizing by-products, it can ‘lower the cost of production.
Meeting Adversity. A big business can show better resistance in times of adversity. It has much larger resources. Losses can be easily borne. A small concern will simply collapse under such a strain.
These are some of FTC advantages that a large scale business has over a small-scale business. But let us see the other side.