Economies of Scale

Economies of scale 1 In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Often operational efficiency is also greater with increasing scale, leading to lower variable cost as well.

Economies of scale 1 Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise. For example, a large manufacturing facility would be expected to have a lower cost per unit of output than a smaller facility, all other factors being equal, while a company with many facilities should have a cost advantage over a competitor with fewer.

Economies of scale 1 Some economies of scale, such as capital cost of manufacturing facilities and friction loss of transportation and industrial equipment, have a physical or engineering basis.

Economies of scale 1 The economic concept dates back to Adam Smith and the idea of obtaining larger production returns through the use of division of labor. Diseconomies of scale are the opposite.

Economies of scale 1 Economies of scale often have limits, such as passing the optimum design point where costs per additional unit begin to increase. Common limits include exceeding the nearby raw material supply, such as wood in the lumber, pulp and paper industry. A common limit for low cost per unit weight commodities is saturating the regional market, thus having to ship product uneconomical distances. Other limits include using energy less efficiently or having a higher defect rate.

Economies of scale Overview 1 Economies of scale are also derived partially from learning by doing.

Economies of scale Overview 1 Economies of scale also play a role in a "natural monopoly."

Economies of scale Physical and engineering basis 1 Some of the economies of scale recognized in engineering have a physical basis, such as the square-cube law, by which the surface of a vessel increases by the square of the dimensions while the volume increases by the cube. This law has a direct effect on the capital cost of such things as buildings, factories, pipelines, ships and airplanes.

Economies of scale Capital and operating cost 1 Overall costs of capital projects are known to be subject to economies of scale. A crude estimate is that if the capital cost for a given sized piece of equipment is known, changing the size will change the capital cost by the 0.6 power of the capacity ratio (the point six power rule).

Economies of scale Economies of scale and returns to scale 1 Where economies of scale refer to a firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function

Economies of scale Economies of scale and returns to scale 1 In this case, with perfect competition in the output market the long-run equilibrium will involve all firms operating at the minimum point of their long-run average cost curves (i.e., at the borderline between economies and diseconomies of scale).

Economies of scale Economies of scale and returns to scale 1 Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range.

Economies of scale Economies of scale and returns to scale 1 Buyers, in turn, benefit from the lower transaction costs and economies of scale that result from larger volumes

Economies of scale Economies of scale and returns to scale 1 However, surprisingly enough, Shalev and Asbjornsen found, in their research based on 139 reverse auctions conducted in the public sector by public sector buyers, that the higher auction volume, or economies of scale, did not lead to better success of the auction

Original equipment manufacturer - Economies of scale 1 OEMs rely on their ability to drive down the cost of production through economies of scale. Also, using an OEM allows the purchasing company to obtain needed components or products without owning and operating a factory.

Distributed generation - Economies of scale 1 Central plants are usually designed to take advantage of available economies of scale in a site-specific manner, and are built as one-off, custom projects.

Distributed generation - Economies of scale 1 These economies of scale began to fail in the late 1960s and, by the start of the 21st century, Central Plants could arguably no longer deliver competitively cheap and reliable electricity to more remote customers through the grid, because the plants had come to cost less than the grid and had become so reliable that nearly all power failures originated in the grid

Distributed generation - Economies of scale 1 The additional premium for DG is rapidly declining as demand increases and technology progresses, and sufficient and reliable demand may bring economies of scale, innovation, competition, and more flexible financing, that could make DG clean energy part of a more diversified future.

Diseconomies of scale 1 'Diseconomies of scale' are the forces that cause larger business|firms and governments to produce Product (business)|goods and Service (economics)|services at increased average cost|per-unit costs. The concept is the opposite of economies of scale.

Economy of scale - Economies of scale and returns to scale 1 Where economies of scale refer to a firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function

Economy of scale - Economies of scale and returns to scale 1 Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range.

Distributed energy - Economies of scale 1 Central plants are usually designed to take advantage of available economies of scale in a site-specific manner, and are built as one-off, custom projects.

Distributed energy - Economies of scale 1 While the levelized generation cost of distributed generation is more expensive than conventional sources on a kWh basis, this does not consider negative aspects of conventional fuels. The additional premium for DG is rapidly declining as demand increases and technology progresses, and sufficient and reliable demand may bring economies of scale, innovation, competition, and more flexible financing, that could make DG clean energy part of a more diversified future.

OEM - Economies of scale 1 OEMs rely on their ability to drive down the cost of production through economy of scale|economies of scale. Also, using an OEM allows the purchasing company to obtain needed components or products without owning and operating a factory.

Marginal cost - Economies of scale 1 Economies of scale are said to exist if an additional unit of output can be produced for less than the average of all previous unitsmdash; that is, if long-run marginal cost is below long-run average cost, so the latter is falling

APT band plan in the 700 MHz band - Potential for economies of scale 1 Because many countries across the globe have adopted the APT band plan, substantial economies of scale are bound to be created. That will lead to personal devices' and network elements' price erosion and thus, also to increasingly higher penetration of mobile devices and mobile internet.

APT band plan in the 700 MHz band - Spectrum harmonization and potential economies of scale 1 Generally speaking, it is very important that the spectrum is used in the same way across as many markets as possible to create economies of scale

APT band plan in the 700 MHz band - Spectrum harmonization and potential economies of scale 1 Overall, the greater economies of scale are, the lesser end user prices will be established and the vaster will be the adoption of the technology that translates to socio-economic benefits

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