How AutoEdge can Achieve Economies of Scale

Economies of scale refer to a phenomenon where as a company increases in size, it has
an efficient production process. The efficient production process results in a decrease in the
average cost per unit of output (Clark, 1988). AutoEdge can achieve economies of scale by
scaling up its production while ensuring that the costs are minimal. With a higher
production capacity comes various advantages. AutoEdge can achieve cost savings through the
scaling up of production. A larger business has advantages over smaller businesses. The cost of
production in producing a bigger output enables the company to spread the cost of production.
AutoEdge can cut costs internally to achieve economies of scale. The company should
seek to ensure that it purchases raw materials in bulk to benefit from reduced costs. The
company can also ensure that it gets a patent or special technology that boosts its production
capacity. The company can also achieve external diseconomies of scale through partnerships and
joint ventures. External diseconomies of scale are attributed to external factors. Partnerships and
joint ventures can help the company achieve external diseconomies of scale.
How to Know When AutoEdge has Achieved Economies of Scale
An analysis of cost per output of production will help in getting to know whether
AutoEdge has achieved economies of scale. A decline in the cost per unit will indicate that the
company has achieved economies of scale. A decline in the average cost associated with an
increase in production is an indication of a company having an efficient production process.
Plotting the graph of average cost can help the company define whether or not it has achieved
economies of scale. The long-run average cost curve should indicate a decline in average costs as
the firm’s output increases.

How to Know When AutoEdge is Achieving Diseconomies of Scale
Diseconomies of scale refer to a situation where the growth of a company results in an
increase in costs per unit. Diseconomies of scale can be attributed to both internal and external
factors (McAfee & McMillan, 1995). Technical issues in the production process can give rise to
diseconomies of scale. The production process can be slowed down in the long run due to
various issues. Over-hiring is also another problem that can result in diseconomies of scale
(Clark, 1988). After achieving economies of scale, the company should be on the lookout for
diseconomies of scale. An analysis of the average cost per unit of production can help define
whether the company is achieving diseconomies of scale. An increase in the cost per unit of
production should indicate diseconomies of scale.

References

Clark, J. A. (1988). Economies of scale and scope at depository financial institutions: A review
of the literature. Economic Review, 73(8), 17-33.
McAfee, R. P., & McMillan, J. (1995). Organizational diseconomies of scale. Journal of
Economics & Management Strategy, 4(3), 399-426.