MARITIME ECONOMICS

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Abang Hafizul Rahman b. Abg Mohd Tamin

Hasnur Khatimah bt. Harun
Muhammad Afik b. Supirin
Muhamad Yuhamizan b. Md Yasin
Nuriylia bt. Nordin
Raja Muhammad Aizat b. Raja Anuar

What is Economies of Scale?

Cost advantage that arises with increased output of a product.
arise because of the inverse relationship between the quantity
produced and per-unit fixed costs
E.g. the greater the quantity of a good produced, the lower the perunit fixed cost
may also reduce variable costs per unit because of operational
efficiencies and synergies
Can be classified into two main types: internal & external
.

Internal
Arising from within the
company

External
Arising from extraneous
factors such as industry size

What is Diseconomies of Scale

An economic concept referring to a situation in which economies of
scale no longer functions for a firm
With this principle, a firm sees an increase in marginal costs when
output is increased
can occur for several of reasons, but the root cause usually comes
from the difficulty of managing an increasingly large workforce
Another reason is low motivationof workers in large firms that results
in lower productivity, as measured by output per worker.

Diseconomies of Scale

History.
important economic issues turn upon the question of how quantitatively important these scale
economies and diseconomies are in various industries.
determines the maximal degree of concentration by firms which is consonant with efficiency.
pursuit of efficiency in scale of plants and firms is consistent with degrees of concentration of
industry control by firms.
allow us to appraise existing degrees of concentration of control in individual industries, and
particularly the development of large multi-plant firms.
importance of plant-scale economies is widely variable among industries generally and among
industries with high concentration of control by a few firms.
high concentration of control by firms is not required to take advantage of economies of largescale plants.

THE CHALLENGES OF AN
ECONOMIES OF SCALE.
reach or achieve economies of scale itself.
do not dare to take the risk and also need to hire a production manager to run a larger team.
facing from short-run total cost to long-run total cost.
microeconomics, we define the short-run as the period of time over which a firms plant
size is fixed.
only variable resource is labor and raw materials.
hire more workers and use existing capital more intensively.
the long-run is defined as the variable-plant period.
different short-runs spread out over a larger range of output.

Difference between Economies of Scale

and Diseconomies of Scale
Economies of Scale

Diseconomies of Scale

Arise when the cost per unit reduces

as more units are produced

Arise when the cost per unit

increases as more units are
produced.

Benefits that the company gains as it

increases in size. E.g. buying in bulk

Opposite of Economies of Scale. So

they are bad things that the
company experiences as its size
increases. E.g. loss of communication

Always pros

Always cons

Economics of scale - falling average cost per unit

Diseconomies of scale, rising average cost per unit

Long Run Average Cost & Economies of Scale

Long run average cost - the cost per unit of output feasible when all factors of
production are variable
All points on the line represent least-cost factor combinations and point above the
line are attainable but unwise, points below are unattainable given present factors of
production.
From Q to Q2, the average cost of each unit decreases

Cont
In the long runall costs are variableand the scale of production can
change
Economies of scaleare thecost advantagesfromexpanding the scale
of production in the long run. The effect is toreduce average
costsover a range of output
As long as the long run average total cost curve (LRAC) is declining,
then internal economies of scale are being exploited.

Type of Economies of Scale;

are specific to individual firm. E.g. advantages enjoy by expansion
Internal
There are many forms of internal economies of scale:
1. Labor economies
. Increase division of labor is a major source of labor economies
. As output increases and the labor force grows, with all its
advantage, may become possible.
2. Managerial economies
. This is a form of division of labor
. Ex: large-scale manufacturers employ specialists to supervise
production systems
. Another example, such as networked computers - improve
communication, raise productivity and reduce unit costs

Cont
3. Martketing economies
A large firm can spread its advertising and marketing budget over
a much greater output
A good example would be the ability of the electricity generators
to negotiate lower prices when finalizing coal and gas supply
contracts

External Economies of Scale

refer to advantages that benefit the industry as a whole
E.g. advantages enjoyed due to some policy changes by the
government
Occur outside a firm but within an industry
arise as a result of the expansion of the industry as a whole.
As an example, if a company invest in a transportation servicing an
industry will lead do decrease in costs for a company working within
the same industry.

Type of Diseconomies of Scale: Internal

imply to all factors which raise the cost of production of a particular
firm
when its output increases beyond the certain limit
These factors are:
1. Inefficient Management
When a firm expands beyond a certain limit, it becomes difficult for
the manager to co-ordinate the process of production
becomes very difficult to supervise the work spread all over

2. Technical Difficulties
. In every firm, there is an optimum point of technical economies
. If a firm operates beyond these limits technical diseconomies will
emerge out

External Diseconomies of Scale

suffered by the firms operating in a given industry
arise due to much concentration and localization of industries beyond
a certain stage
Localization leads to increased demand for transport and, therefore,
transport costs rise

THE ADVANTAGES OF ECONOMIES OF SCALE.

achieving economies of scale is a reduced cost per unit of production.
lower cost per unit allows a business to earn greater profit even when maintaining a
similar price point.
efficient producer can often purchase supplies in bulk.
operate efficiently have a better ability to invest in advanced technology and new
equipment.
economies can often afford to investment in other important business activities.
more favorable position to donate products to social organizations and nonprofits.

Summary.
Economies of scale and diseconomies of scale are concepts that go
hand in hand.
both refer to changes in the cost of outpuT
A company would have achieved economies of scale when the cost
per unit reduces
Diseconomies of scale refers to a point at which the company no
longer enjoys economies of scale.
through this assignment it helps us as a student to understand more
about economics of scale and diseconomies of scale