1. How do firms benefit from economies of scale?
2. What might be some potential disadvantages of being part of a large corporation?
3. Suppose business is booming at your firm. It is contemplating adding more capital, but the day supervisor suggests simply hiring more workers. How should the you decide which alternative to pursue?
Please see the answers below:
1. Firms benefit from economies of scale as they may have a high proportion of fixed costs and it take very little (if any) incremental cost to expand production of a certain item. In this scenario a firm can scale up production leveraging its economies of scale. The firm benefits as the incremental cost to expand ...
The solution succinctly answers the three questions asked in the question. The response also dives into fixed costs versus variable cost and the implications of leveraging one or the other expansion method when needed.