Managerial Economics PowerPoint No Plagarism and APA format

Running head: MANAGERIAL ACCOUNTING DISCUSSION

MANAGERIAL ACCOUNTING DISCUSSION 4

Managerial Accounting Discussion

Name:

Institution:

Date:

Managerial Economics DQ

An economy of scale is achieved in the production process when more products are produced at a lower cost per every unit that is produced (Rasmussen, 2011). Economies of scale are thus the cost savings that normally occur when a company makes more of a certain product. It encompasses all the factors that influence the average of producing a product to go down as the volume of the product’s output increase. For AutoEdge to obtain economies of scale with its production, it would be very important to focus on the technical aspects of the company’s production process. This recommendation is based on the fact that a company can be able to achieve technical economies of scale by improving its size of production as well as improving the efficiency of its production process (Rasmussen, 2011). There are a number of ways through which this can be done by AutoEdge. One of them is to divide the production process into specific and separate tasks. This will not only increase productivity but will also increase specialization and efficient among the workers. The second thing that can be done is to build on the experience of the production process. This is because the efficiency of any given process increases with greater research and knowledge on that process. This is very important because it promotes the reduction of the production costs. Having in place the most experienced workers and using the most efficient processes would enable AutoEdge to reduce its average costs in production.

To determine whether AutoEdge has achieved economies of scale, the first thing that will be evaluated will be the cost of production of a single unit. It will have achieved it if there will be a decrease in the average cost of every single unit with increase in the number of produced product units. This means that we can be able to know that the company has achieved economies of scale if the increase in the volume of production will lead to an increase in the company’s profits due to the decrease in the average cost per every single unit produced as the volume of production is increased. We can also know that the company has achieved economies of scale when all the inefficiencies in the production process have been achieved through specialization and division of labor.

On the other hand, we can determine that AutoEdge is achieving diseconomies of scale when the increase in production does not cause any further decrease in the average costs of production of every single unit of the product. We can also notice diseconomies of scale when costs of production start to go up due to some inefficiency in the production process (Nadal & Vijayan, 2012). A good example involves having too many workers doing the same thing and getting in the way of one another in the producing process, thus reducing the production efficiency and increasing the resources spend in production.

References

Nadal, E. N., & Vijayan, S. (2012). Managerial economics. New Delhi: PHI Learning Private Limited.

Rasmussen, S. (2011). Production economics: The basic theory of production optimisation. Berlin: Springer.