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Thursday, December 31, 2015

Economies of Scale: How to take advantage of them

One of the topics, I learnt in economics, fascinated me a lot. It was economies of scale.  It refers to reduction in per unit cost owing to increased production.
It explains how a firm can reap benefits by growing in size.  This concept not only proves helpful on production side but also in consumption. The greater the size of consumption the greater will be savings in per unit cost.
Heating expense, for example, for room is constant for any number of people. Hence more the number of people living in a room lesser will be the per person expenditure for heating. Same goes for housing space. More number of people needs more rooms but space requirement for kitchen, TV. Lounge, bathrooms per person reduces as number of people rises. Machine, vehicle, etc can also be shared if more people are living in a combined household.
It is not only the case with your housing budget; it does benefits nations as well. Any country having large size of population can reap economies of scale. China and India for example have huge population and they can use it to their advantage.  They have huge bargaining power. They can use it for getting discounts which smaller nations like Maldives cannot think of. Furthermore businesses based in these countries are better able to compete globally owing to economies of scale which they achieved due to huge consumer market in their native country.
The same benefit, nations try to achieve by forming free trade regions.
Let us take the example of ASEAN region.  Combined population of ASEAN member states is 625 million. The huge population will help people access good quality goods and services at low prices. For supplying these goods and services business community will need to operate their plants at full speed, this would reap economies of scale for them as well, hence more job opportunities for people living in these regions.
Learning about these benefits, you must be thinking of ways to reap these benefits for yourself and your family. Some of them are here; while you may think of many others.
You can start living in combined household and if possible by living tribal lifestyle, take advantage of companies that are owned by their customers, purchase in bulk, eat together, for housing; get a plot of land in cooperative housing society and the best way to reap these economies is strengthening family bond; through marriages, reducing divorce rates, and keeping good relationships with kith and kin.                                 

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