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Sirs,
Could you explain the answer of the following question?Which of the following is NOT a source of economies of scale?
1. The introduction of specialist capital equipment.
2. Purchasing raw materials and other inputs in bulk.
3. The employment of specialist managers
4. Cost savings resulting from new production techniques.Correct answer is (4) and explanation is as follows:
Technical improvements can apply at any scale of operations, and so are not a source of economies of scale.My question: Everywhere in lecture and text I ve read that technical improvements helps in achieving economies of scale, then why is not a source of economies of scale in this question. The explanation in the answer is not making any sense to me.
I think it’s to do with what a business can afford: small businesses will be more restricted on machinery they can afford.
I think the question is not very good: options 1 and 4 could well be linked as new production equipment might be how the new production technique is achieved.
If the new production techniques depended on high expenditure on R&D and machinery then they would be a result of large operations. However, there is always the possibility that a very small firm happens to make a breakthrough, almost by accident, and suddenly saves costs compared to even its largest rivals.
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