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Student1:

First of all we have to define what âeconomies of scaleâ are: âEconomies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs; i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are spread out over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies and synergies. Economies of scale can be classified into two main types: Internal â arising from within the company; and External â arising from extraneous factors such as industry sizeâ (Investopedia.com, 2017). 

In an example I read on a different page it said to think of the economies of scales like this â you need 500 leaflets printed and the printer tells you that it will cost $10 per leaflet for a total of $50,000. Now you need 2,500 leaflets and the printer tells you that it will cost $4 per leaflet, for a total of $10,000. With the larger quantities of leaflets ordered you get a lower price because the printers price per job came down so he is passing the savings onto you â the customer.

In transportation, economies of scale works the same way. Take a company like UPS, they are shipping packages from point (or hub) âAâ to point (or hub) âBâ for you, the customer. If they are shipping just a few, you are going to pay a pretty hefty fee for those packages, but the more you ship (to the same place) the more you save.

According to transportationeconomics.org âIt is important to consider the full range of economic impacts, both positive and negative, that a transport project may cause. For example, an urban highway expansion may improve motorists' access and reduce their costs per vehicle-mile, but by creating a barrier to pedestrian travel and stimulating more dispersed land use development patterns, reduces access by other modes, and increases the total amount of travel required to reach destinations. Similarly, improving access to a particular area can expose businesses to more competition (for example, if previously captive local customers can more easily access regional shopping centers), reducing business activity thereâ (transportationeconomics.org, 2017). 

One of the biggest disadvantages that I noticed in my research with transportationeconomics.org was that an improvement can also be a disadvantage at the same time. For instance, using the above scenario of a road improvement â it gives your business faster access to the ports, various shipping facilities and other general facilities, but the disadvantage comes when you finish the road project thus allowing a competitor to buy a piece of real estate along your newly completed road project and set up direct competition with you for a reduced cost â since they will not have to shove out money for road improvements now.

I guess the one big thing to ask yourself before any undertaking is how will this help me and how will it hurt me/help my competition and decide where to go from thereâ¦..

 

Student2:

Economy of Scale is the goal of any company producing a good and/or product. Economy of scale is the cost advantage that arises with increased output of a product (Heakal, 2017). In short, when more units of a good or service can be produced on a large scale, yet with fewer costs, ES is achieved. As this concept relates to the transportation industry, take for example a trucking company. As business grows, eventually your profit return will be greater than your operating cost. However, just like any company, to achieve ES takes time, patience, and investment. Hiring the labor involved and paying them, investing in the machinery/vehicles, and training costs all have to be examined. The initial cost input may be high; however, once efficiency takes over, a company is usually on its way to ES. At the same time, economies of scale can also have disadvantages. As mentioned in the research, bigger isnât always better. Heakal states ânot only will small business become extinct with the next advent of the transnational of power between demand and supply could become weaker, thus putting the company out of touch with its customersâ. When a company loses touch with its customers, they lose sight of what effect it will have on them when determining pricing. This will lead to the companies creating monopolies and competition will disappear. There are always advantages and disadvantages, but learning how to manage them and keep them in balance will always do more for a company and help them grow into a successful business.

 

 

Man question as reference:

Describe the concept of "Economies of Scale" as it relates to the transportation industry. What advantages has economies of scale brought to transportation? Can you think of any disadvantages?

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Status NEW Posted 28 Apr 2017 04:04 AM My Price 10.00

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