Economies of Scale
Economies of scale are the main drivers of corporate gigantism in the 20th century. Economies of scale simply refers to the cost benefit achieved with an increasing output / product unit. Economies of scale exist due to the inverse relationship between quantity produced and per-unit fixed costs ; the higher the quantity produced, the lower the cost per unit.
Economies of scale can be seen in an orange juice production. The more orders , or the more fruits, the growers harvest, the more savings they make, as it will in turn get cheaper prices for the materials needed to produce and package as the materials will be bought in larger quantities with more discounts. ( 2 dozen oranges needed to produce 1 package of orange juice ) The company , eventually, in turn would give the customers cheaper prices for the more orders for juices they make. This will make the company stronger, a more respected company from its suppliers as it is producing in higher volumes and it’s turnover becomes higher. ( 3 billion oranges to 250 million litres of juice annually)
Economies of scale is distinguished between internal diseconomies of scale – arising from within the company and external diseconomies of scale – arising from extraneous factor. In Florida’s Natural production line, the internal economies of scale would be technical – expensive capital inputs. This refers to specialist capital machinery, especially the machine used to harvest the orange , which cost 1 million dollars. External economies of scale do not completely exist in Florida’s Natural orange juice production because oranges being transported to the processing plant are 20000 kilos a day and atleast 200 trucks are needed to transport. So the available trucks are always full transporting the oranges to and fro the whole day. If this issue can be simplified or developed, then an external economies of scale would exist.
Economies of scale can be seen in an orange juice production. The more orders , or the more fruits, the growers harvest, the more savings they make, as it will in turn get cheaper prices for the materials needed to produce and package as the materials will be bought in larger quantities with more discounts. ( 2 dozen oranges needed to produce 1 package of orange juice ) The company , eventually, in turn would give the customers cheaper prices for the more orders for juices they make. This will make the company stronger, a more respected company from its suppliers as it is producing in higher volumes and it’s turnover becomes higher. ( 3 billion oranges to 250 million litres of juice annually)
Economies of scale is distinguished between internal diseconomies of scale – arising from within the company and external diseconomies of scale – arising from extraneous factor. In Florida’s Natural production line, the internal economies of scale would be technical – expensive capital inputs. This refers to specialist capital machinery, especially the machine used to harvest the orange , which cost 1 million dollars. External economies of scale do not completely exist in Florida’s Natural orange juice production because oranges being transported to the processing plant are 20000 kilos a day and atleast 200 trucks are needed to transport. So the available trucks are always full transporting the oranges to and fro the whole day. If this issue can be simplified or developed, then an external economies of scale would exist.