INFO Large firms take advantage of economies of scale in many ways, such as buyi
ID: 359264 • Letter: I
Question
INFO Large firms take advantage of economies of scale in many ways, such as buying their inputs at discounted prices. But bigger is not always better. One major problem that confronts large firms is becoming "top-heavy"—that is, having a labor force that requires a large number of managers whose only job is to manage. This lowers the overall productivity of the labor force and increases costs. DISCUSSION QUESTIONS Discussion Questions:(1) Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers. (2) Your friend owns a business and is looking to expand. Describe the risks and rewards of such a move using economies of scale and costs. INFO Large firms take advantage of economies of scale in many ways, such as buying their inputs at discounted prices. But bigger is not always better. One major problem that confronts large firms is becoming "top-heavy"—that is, having a labor force that requires a large number of managers whose only job is to manage. This lowers the overall productivity of the labor force and increases costs. DISCUSSION QUESTIONS Discussion Questions:
(1) Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers. (2) Your friend owns a business and is looking to expand. Describe the risks and rewards of such a move using economies of scale and costs. INFO DISCUSSION QUESTIONS Discussion Questions:
(1) Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers. (2) Your friend owns a business and is looking to expand. Describe the risks and rewards of such a move using economies of scale and costs. Discussion Questions:
(1) Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers. (2) Your friend owns a business and is looking to expand. Describe the risks and rewards of such a move using economies of scale and costs.
Explanation / Answer
(1)
For every 80 workers, there is a total of 20 managers.
Thus, among the 1000 employees, 200 are managers.
Thus if all the 1000 employees were workers, the productivity would be 100%, then because of the managerial cadre, the productivity has reduced by 20% and now is at 80%
(2)
Economies of scale help you take the benefit of the learning curve and increase the efficiency and better productivity. It helps you save costs because it is the bulk production of the material. For example, when you mass produce a Tshirt, you can save a lot of costs as the machines need not be calibrated to produce varieties.
The main disadvantage of expanding the business is that the complexity of managing the business greatly increases and hence you will need to appoint managers. This will lower the per employee productivity.