Give an example of what economies of scale are

Economies of scale refers to the phenomenon of increased economic efficiency caused by expanding the scale of production. Economies of scale reflect the relationship between the degree of concentration of factors of production and economic efficiency.

1. Case 1

One out of every four microwave ovens in the world is a Grants?

Faced with an increasingly broad market, every enterprise has two strategic choices: one is multi-industry, small scale, low? market share; the second is less industry, large scale, high market share. Glanz chooses the latter. Granz's microwave ovens have reached 70% market share at home; and 35% market share abroad.

Granz's success on the use of the theory of economies of scale, that is, the production of a certain product, only to achieve a certain scale, in order to achieve better benefits. The minimum economic scale of microwave oven production is 1 million units. Granz's approach is that when the scale of production reaches 1 million units, the ex-factory price will be set at a scale of 800,000 units below the cost of the enterprise;

When the scale reaches 4 million units, the ex-factory price is adjusted to the scale of 2 million units below the cost of the enterprise; and now the scale reaches more than 10 million units, and then the ex-factory price to the scale of the cost of 5 million units below the cost of the enterprise. This kind of price reduction on the basis of cost reduction is a reasonable price reduction.

The result of the price reduction is to eliminate the enterprises below the price equilibrium point again and again on a large scale, so that the concentration of the industry continues to increase, so that the industry's level of economies of scale continues to increase, which leads to the whole industry social necessary labor time continues to decline, and then bring the whole industry's costs continue to decline.

Low cost prices are inevitably low, and the biggest beneficiary of price cuts is the general consumer. Within 10 years from 1993, when Granz entered the microwave oven industry, the price of microwave ovens has dropped from more than 3,000 yuan per unit to about 300 yuan per unit, a drop of more than 90%, which can't be said to be a credit to Granz, and can't be said to be a great contribution of Granz to the Chinese consumers.

2, case two

Smith to the needle workshop as an example, from the point of view of the division of labor and specialization reveals the needle process refinement can increase productivity is: division of labor to improve the labor skills and proficiency of each worker, saving the time wasted by the change of work, and is conducive to the invention of the machine and the application.

Since the division of labor is based on mass production on a certain scale, Smith's theory can be said to be a classical explanation of scale economy. Economics of scale in its true sense originated in the United States and reveals the economical scale of mass production.

Expanded information:

Economy of scale is manifested through the expansion of the scale, and through the rational allocation of factors of production to make the enterprise obtain the optimal The rational allocation of the factors of production so that the enterprise to obtain the best economic efficiency. The economy of scale of an enterprise should be analyzed by the size of the enterprise.

The optimal economic scale determined in accordance with this economic scale organization of production and business activities, so that the enterprise to obtain the highest economic efficiency. Economic scale refers to a certain production technology under the conditions of organization, the reasonable allocation of production factors, so that the enterprise to obtain the economic benefits of production capacity. When the economic benefit reaches the best state, the corresponding economic scale, the economy of scale.

Baidu Encyclopedia - Economy of Scale