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Some Problems

William Gordon

Posted 05 September 2005 - 07:27 PM

Hello,
I'm having a bit of trouble with working these two things out:

1. What are "economies of scale" exactly?
2. If a shop like Ottokars is in the service/tertiary sector than why is it selling goods (books) ?

Any help appreciated.

thebizwiz

Posted 05 September 2005 - 10:55 PM

Good evening William.

Welcome to the Higher Business Management subforum, and congratulations on your first post on HSN/f.

I'll deal with your first point to begin with.

Let's say company A sells 50,000 products each year, which are exactly the same specification as each other. Company B sells 10,000 products, and they're all completely different to each other - "one-offs".

In order to make their product, Company B has to buy each individual component separately. Whereas Company A can buy in bulk.

It's this "bulk-buying" that leads to economies of scale.

The basic idea behind it is that Company A can benefit from economies of scale because they're buying in bulk. It's cheaper to buy 50 of the same item at once as opposed to just 1 of them. The seller may provide discounts for buying in bulk, and so on.


Now on to your second question.

It's perfectly fine for bookshops to sell books. What they're doing is providing a service to the consumer, i.e. selling them the product.

If you think about it, businesses in the primary sector extract raw materials. Businesses in the secondary sector manufacture a finished product from the raw materials. The service sector provides the service to the consumer, which in this example is selling the book to the consumer.

If you're unsure about this, I refer you to my Course Notes, on Page 3, in the section that's headed up "Sectors of Activity".


If I can be of any more help please feel free to e-mail me.

William Gordon

Posted 06 September 2005 - 08:32 PM

Thankyou for the quick response.

I think I understand the second answer, however I'm still a little unsure on economies of scale - I have heard the term used to describe advantages a company gains from growing smaller aswell as larger - how can this be?

thebizwiz

Posted 07 September 2005 - 10:24 PM

To be honest with you I doubt a company could benefit from economies of scale if they were getting smaller, unless they were changing business practices, e.g. they used to have 3 production plants and are selling 2 off to only have one, where all their materials get delivered to, etc.

I'd check that if I were you... ask your teacher what he/she's on about!

James

AppleCore

Posted 07 September 2005 - 10:33 PM

economics of scale for growing smaller can be only in one possibility where it is possitive.. where the company previously was huge and even though it created economies of scale, never managed to sell stock thus creating a backlog.. so when they shrunk, they still benifited from economics of scale as their sales were equal or greater to their input!? .. if u get my drift.

xxkimxx

Posted 14 December 2005 - 04:08 PM

economics of scale is simply the advantages of bein big- large firms cn demand stuff like dates to pay bein pushd bk n stuff cz thy r so big n the firm thy r buyin offa cnt afford to loss the sale
tht help?

herbeey

Posted 13 February 2006 - 12:11 PM

In advanced business we have the best example.
Businesses benefit from the huge economies of scale of the European single market. This is because they are able to freely operate in not just one country (small scale), but can operate freely throughout the whole of the EU (especially for countries that share the euro, but that's besides the point). By having such huge operations, they can have much more flexibility in where they get their resources/ suppliers and have more power in who they sell to. Stuff like transporting goods becomes cheaper, since instead of sending a couple of lorries or planes, you can send much more at a time, allowing for increased efficiency....

I think that explains it sort of.

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