This paper has the purpose to study economies of scale and economies of scope in business using Chang Cooperation which is naturally a monopoly which can produce at a lower cost than others’ firms. They are using the economies of scale in decreasing the cost of production such as plastics, bottles, and fixed cost by produce large amount of outputs to decrease the total cost. However, Chang has now entered the long-run which make the average cost of production declines throughout the entire market. As a result, Chang Corporation can supply the entire market demand at a lower cost than the others’ firm. In the economies of scope, Chang produces various kinds of ...view middle of the document...
Moreover, by applying the economies of scope, this makes the firm to produce the product cheaper as a result of a wider range of products rather than specialize in just a handful of products. Expanding the product range to exploit the value of existing brands is a good way of exploiting economies of scope. E.g. Chang Classic, Chang Draught, and Chang Light
Economies of scale or increasing returns, in the context of production; imply a proportionately larger increase in output for any given increase in input. The idea of increasing returns first came from none other than Adam Smith: through his famous pin-making example, Adam Smith illustrated how specialization or division of labor could lead to lower unit costs. Adam Smith, as Kaldor (1972) remarks in his account of where economic theory went wrong, abandoned the assumption of increasing returns in favor of constant returns, from the middle of the fourth chapter of Vol. I of the Wealth of Nations; and so did the neo-classical general equilibrium theory that came later.
The economies of scope concept are defined as the process of reducing the cost of resources and skills for an individual business enterprise by spreading the use of these resources and skills over two or more enterprises according to Don Hofstrand, Co-Director – Ag Marketing Resource Center Iowa State University. As shown in Graph blow, the cost for an enterprise is cut in half if the resources are used in two enterprises rather than just one. If the use of the resources is spread over three enterprises, the cost per enterprise is reduced to a third.
Relevant past research study
Research Study: Most Beer Drinkers Prefer Glass Bottles
Jun 21, 2012
In 2011, O-I conducted a five-day qualitative study of beer drinkers to explore preferences of U.S. beer consumers. Results of the study showed that beer drinkers have a clear preference for bottled beer. In fact, ninety percent of beer drinkers prefer a bottle and they strongly associate bottled beer with superior taste and quality – the two most important elements for a drinker when choosing a beer. The study focused on beer drinkers from three key markets – Seattle, Chicago and Boston. Respondents were selected to represent a wide range of ages, genders and preferences for mainstream vs. craft beer brands within the study. The study incorporated an immersive insight blog in which respondents logged into the secure online site to complete daily assignments and participate in larger group discussions. The blog assignments and discussions utilized a multitude of interactive tools, videos and imagery to facilitate a rich exploration of attitudes, behaviors and preferences related to beer packaging. Click here for an info graphic summarizing the key research findings that highlight the reasons why consumers prefer to drink beer out of glass bottles.
The sign value of beer and the consumption...