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    Economies of scale

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    A young man has set up a lemonade stand on the corner of College Street and Air Park Boulevard. Temperatures in the area climb to 100 degrees during the summer. The intersection is near a major university and a large construction site.

    Explain to this young entrepreneur may benefit from economies of scale. Also explain some dis-economies of scale.

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    Solution Preview

    . First we define what economy of scale and diseconomy of scale.

    Economies of scale (hereafter ES) are the cost advantages that a business obtains due to expansion (AKA mass production).

    Diseconomy of scale (hereafter DS) is the forces that cause larger firms to produce goods and services at increased per-unit costs.

    ES is fairly easy to understand, as most people understand mass production. There are always fixed costs incurred in any ...

    Solution Summary

    The expert explains the economics of scale for lemonade stands.