352 Week 8: Economies Of Scale Reply To Forums

reply 100 words to student robert 250 words forum wk 8:

 

Economies of scale is when more units of a good or service can be produced on a large scale, yet with fewer input, or operating, costs. (Heakal, 2018). This is more of the manufacturing definition, but in terms of transportation when a mode is able to lower their operating costs while offering the same service or more they have achieved economies of scale. The deregulation of the airliners and railroad is how these two industries were able to achieve economies of scale through utilizing the Hub and Spoke Model rather than the Point to Point Model which was dictated to them through federal regulations. The major advantages is that the transportation service can be offered at lower prices to the consumers. The disadvantages include it being harder for new business to compete with the existing ones due to their operating costs being higher due to it being a start-up. This prevents competition amongst companies. Without competition the companies are able to decide what to price their service at, and without challenge this hurts the consumer who is paying higher prices for a service that could be offered at a lower price. The deregulation of the railroad allowed the industry to abandon unprofitable tracks and focus on the profitable ones, and it also allowed the companies to merge easier. This stifled new railroad companies from entering, but the economies of scale were being achieved. In a perfect world economies of scale would be a great success for the companies and the consumers, but this creates a harder industry for new companies to enter and compete. The lack of competition means that the companies can dictate prices without worrying about it being offered at a lower price by a competitor. This turn into an ethical issue when economies of scale is achieved.

References

Heakal, R. (2018). What are Economies of Scale? Investopedia. Retrieved from: https://www.investopedia.com/insights/what-are-economies-of-scale/

reply 100 words to stundent jermaine 250 word post 352 wk 8

 

Class, as we start our final week, allow me to say that it has been a pleasure conversing with each and every one of you and I thank you for the insight that you have bestowed upon me.  This week we are looking at the “Economies of Scale”.  Investopedia defines economies of scale as the result of costs savings or reduced costs due to the increased output of a product.  The company I purchase oil from to provide me with hot water and run the floor heat and radiators I have in my duplex utilizes part of this concept.  As I increase the amount of liters I am intending on purchasing from them, they lower the price per liter, even though there is only one truck that will come to deliver it.  This concept relates to the transportation industry as bulk shipping.  The philosophy is that the more units you produce, the lower the per unit price will be.  An advantage in the transportation industry would be more efficient transporting as well as better utilization of resources.  By shipping more product, the planes, trains, and ships as well as trucks are carrying full capacity.  When we have our B-747s come through, we are always trying to have it leave with the max load, 42 pallets.  In 2016, we even coordinated with our headquarters, Air Mobility Command (AMC) and loaded the maximum allowable cabin load (the amount the aircraft can depart with) ever recorded in AMC history which was 120 tons or 240,000 pounds.  I can’t think of any disadvantages from the transportation industry aspect, but for the consumer yes.  There could be a disadvantage for the consumer or receiver of the product.  If they can’t move it as quick then it could take up a lot of space and that can be some expensive storage or inventory costs.

Jermaine

Reference

Investopedia, (n.d.) Economies of Scale. Retrieved from:  https://www.investopedia.com/terms/e/economiesofscale.asp

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