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Cost Advantages and Economy Types

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Laura's Raw Yarn (LRY) Company sells undyed wool yarn through the mail, promoting it through craft magazines. All of the raw wool is supplied by Stephen Rich Lamb Farms which raises lambs to be sold to local butchers and sells its wool only to LRY, which then spins the wool into high quality yarn. The yarn is bought by individuals and independent crafts people who use it for knitting, crocheting and weaving products that are highly prized. What types of economies does Laura's Raw Yarn exploit? What types of economies does Stephen Rich Farms exploit? Are there further possibilities for obtaining cost advantages that either of these companies might exploit? What actions would be necessary to achieve those economies?

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Solution Summary

The economy and cost advantage exploited by the fictional Laura's Raw Yarn Company and Steve Rich Farms is investigated here in 352 words with 5 references.

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What types of economies does Laura's Raw Yarn exploit?

It exploits the economies of bulk-buying. Laura's Raw Yarn gains more bargaining power with Stephen Rich Lamb Farms. It will be able to obtain lower prices for the wool. In addition, it gets technical economies by using superior techniques for spinning of wool. It also gets marketing economies because it can spread its cost of advertising in craft magazines over the entire bulk of sales. It also gets external economies as Stephen Rich Lamb Farms supplies it will high quality wool.

What types of economies does Stephen Rich Farms ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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