Capable of Reducing Average Costs †Free Samples to Students

Question: Discuss about the Capable of Reducing Average Costs. Answer: Introduction: CSR and Boral were able to operate as distinct companies before the fall in demand because there was a high demand hence each was able to make sales before the diseconomies of scale set in due to the falling productivity. Economies of scale (EoS) describes cost-advantages which emerges following the enlarged product output. The EoS emerges since the reciprocal association between produced output and the per unit fixed cost (FC); i.e. the greater the product quantity produced, the lower per unit FC since such a cost remain spread out across the bigger product numbers. The EoS could further reduce variables costs a unit because of synergies and efficiencies of operations. The economies of scale is categorized in to two main types, internal as well as external. Internal EoS emerges from within the firm whereas the external EoS arise from extraneous variables like size of the industry. A merger is feasible in this case between CSR and Boral joining together to establish an oligopoly. The novel oligopoly organization shall have a bigger share of market that assist them gain economies of scale and hence become more profitable even in the face of the declining demand. The merger shall further decrease competition and might culminate in higher prices for the consumers of brick products because they are the only firms in the market. The merger has the benefit of the EoS. This occurs where a bigger company with larger output is capable of reducing average-costs (AC). The lower AC can reduce the consumers price. The EoS will be technical, bulky buying, financial and organizational. Technical economies is achieved when the entity has substantial FC hence novel superior organization would have reduced AC (David Myers CEcD 2015). Bulk buying will result where the huger firm will receive discount when it buys bulky quantities of the raw-materials. Financial EoS will result where better rate of interest will be available for the large company. Organizational economies of scale will arise the merger will have one efficient head office rather than two offices. The firm will increase in size due to the merger and hence gain from the many of such factors. The merger will be more efficient, realize profit which enable more RD and struggling firm will benefit from the new management (Polkinghorn 2016). In case the new joint proceeds, the new market will turn into monopoly. This will lead to a rise in price with a reduction in quantity and a subsequent increase in profitability. Since these are only two markets, when they merger they will be similar to monopoly because the only distinguishing feature shall have vanished. The merged firm shall be seeking the maximization of profit by having its output set at a point at which MR equals MC at output QM; price Pm. Price will be increased while the output reduced. The red region denotes supernormal profit (AR-AC)*Q. Cost played a major role in explaining the huge decline in independent booksellers. This is because there was high cost in marketing the products of independent booksellers than the online booksellers. The independent bookstores are inefficient economically because utilities, rent, and a brigade if workers who read books are never affordable hence the solely means for bookstores to remain inundated is selling products at an enormous markup. The cyclone would increase the price and reduce the quantity of bananas in near short run as the price highly elastic. The supply of banana will fall but the demand will be unchanged thereby shifting the supply curve leftwards leading to a rise in the equilibrium price. The demand will remain unchanged but there could be a slight decline in demand in the long run due to rise in prices but in short run, demand will be unchanged. A sharp fall in supply implies less quantity supplied than quantity demanded hence an increase in price as shown: The supply curve shifts from S1 to S2 leftwards leading to a reduction of quantity suppled from Q1 to Q2 and the price increases from P1 to P2 as shown above. It is not strictly true in economic terms that bananas were called luxuries since both demand and supply curve would shift in opposite direction when the quantity decrease which was not the cases here in the short run as the demand remained unchained. No large increase in price would be realized in this case as people could have easily chose to avoid banana. References David Myers CEcD, M.A., 2015. economies of scale. Economic Development Journal, 14(3), p.11. Polkinghorn, A., 2016. Economies of scale. Br J Gen Pract, 66(648), pp.351-351.