CAUSES OF ECONOMIES OF SCALE
- To improve production technique (applying up to date technology)
- Efficiency utilization of resourses
- Full improvement of resourses
- Availability of reliable market
- Effectively and economically useful of capital goods.
Internal economies of scale:are those factors which bring about the reduction in average cost as the scale of production of individual firm rises.
External economies of scale:are result from the simultanous growth or interaction of a number of firms in the same or related industries.These includes specialist companies of supplying and repering machinery.The expansion of an industry leads to the establishment of many firms specializing in a particular stage of production processes.
CAUSES OF DISECONOMIES OF SCALE
- Weak market linefficiency
- Leakage of resourses
- Applying old techniques of production
- Poor management
- Unemployment of resources
LARGE SCALE PRODUCTION
Refers to the scale of production in which large output is produced and the amount of inputs used is also large.
MERITS OF LARGE SCALE PRODUCTION
- Ability to minimize the cost of production and maximize profit e.g buying inputs in large quality,employing advanced technology.
- Variety of goods due to settled market.
- Easy to raise capital from financial institutions like commercial banks.
- Expansion of market through advertising researches.
- There is ability to increase efficiency in production e.g advanced technology, skilled people,intensive capital.
- Specialization and division of labour is applicable.
DEMERITS OF LARGE SCALE
- It involves large cost of administration.
- Very difficult to make decision. Due to large number of people
- It needs large capital to start production to employ labour and machines.
- Managers have less entrance on managing the scale.
Why do small scale firms continue to exist side by side with the large scale enterprise?
- Some small scale firm supply inputs to the large scale firms. The large scale firm plays part as a market for small scale firm.
- Small extent of the market. The output being produced by small scale firms is easily to be disposed then the output produced by the large scale firms.
- Small scale firms have control with the customers.
- Easy management in small scale firms due to small resources than in large scale firm which require complicated economies systems.
- Simplicity in technique of production.
- There some cost which small scale producers do not like advertising transport.
- Decision making.It is quick because it involves one person( owner ).
- Low operating and administrative system.
- High commandment to owner of the firm.
DISADVANTAGES OF SMALL SCALE FIRM
- Limited possibility of expansion because of small amount of capital.
- Large average cost.
- Can not produce variety of goods. It is risky in case of market decline.
- Difficult to market the products, due to low advertisement.
- Inefficient production because of instability of employing very skilled labour.
- Choice of the appropriate formula and computations
This is a payment paid to labour for its efforts rendered in the production process
Types of Wages
- Money or nominal wages
This refers to the amount of money received by a labourer for performing a certain work without considering the amount of goods and services worth it.
- Real wages
Is the wage that is measurable in the amount of goods and services worth it and therefore it considers the purchasing power.
- Kind wages.
This is the type of wage which is paid interms of physical goods. E.g. in rural areas labourers are at times paid interms of such as grains.
Determinants of Real wages
- The price level
The purchasing power of money depends upon the price level. Therefore when the price increases the real wage decreases and the opposite is true.
- Extra Incomes
This is an addition to what the labourer earns from other sources which finally results into high real wages.
- Extra Facilities.
Laborers receive extra facilities such as housing, medical, education etc. such benefit also increase the real wage of the worker.
- Working hours.
When looking at the real wage. Working hours with their distribution leaves and vacations are very important. The less the working hours by provision of leave hours, the higher the real wage.
- The nature of the work
If the work is risky, injurious e.t.c to the health of the labourers then the real wage in that case is to be considered low and the opposite is true.
Regularity of the work