Any company, planning its long-term work, must not only combine various factors of production, but also change their number, correctly applying the economies of scale. As everyone knows, a change in different factors in one proportion leads to completely different results. By definition, the economies of scale in the economy are the ratio between the change in the volume of commodity output and the cost of production factors.
The mathematical property of this production function allows us to describe the relationship between the volume and efficiency of resources. This concept answers the question of what happens with the release of products at a time when resources (factors) increase in the same proportion. Since the effect of scale implies that these factors are variables, the whole concept of this indicator is quite long-term.
The following options for this parameter, depending on the value of the indicator obtained:
- constant or unchanged effect, in which the volume of output changes in the same proportions as factor costs;
- positive or growing - with it, the volume of output increases much more than the costs of production factors;
- negative or decreasing - with it, the volume of output increases in a much smaller proportion than factor costs.
The effect of the scale of production is due to the following phenomena:
- The absence of the law of diminishing returns. All factors are variable.
- The insufficient intensity of the application of certain factors. In this case, the invariance of their relationships is assumed.
Keeping the factor ratio unchanged for any production and level of output of marketable products allows you to clearly trace the manifestation of the expected economies of scale. For this, it is necessary to analyze the resulting isoquant map. In the case when, with the same proportion of the increase in the volumes of factors, the iso-quanta converges, this indicates a positive scale effect; Well, if they dispersed, then there is a negative effect; if they keep their step, then a permanent effect is obtained. In fact, there are no laws regulating the direction of action of this indicator, and a determination of its nature can only be obtained empirically.
There are certain factors that favor the growth of returns to economies of scale:
- labor productivity growth (with its deep division);
- size factor (production of more powerful products while maintaining existing technology);
- use of the latest technology and modern technology;
- maximum load of available capacities;
- the use of specialization in management and a more skilled workforce.
There are also factors that counteract the growth of this indicator:
- difficulties in coordination and management;
- accident rate growth and bottlenecks;
- increase in costs of marketing products and transportation costs;
- increase in administrative expenses.
The duration and nature of the economies of scale are always determined by the specifics and characteristics of the technology; therefore, a certain industry is characterized by some optimal volume of production. The main issue in organizing a certain type of business is the question of which enterprises will become more efficient: small or large. The concept of the size of the enterprise is determined by the volume of the corresponding sales market. The growing economies of scale often arise when large enterprises have great potential. A typical example of such a production is the aviation industry.