In the long run economy, for decreasing the cost, we have some concepts. They are economies of scale, economies of scope and economies of agglomeration.
Economies od scale- it is defined as percentage drop in average cost of production following one percent increase in output. In general, average total cost decreases as output increases.
Examples- big industries, banking, retail industry and likewise where the cost of production is constituted mostly by fixed cost. Also the telecom industry which is highly fixed cost dominated, with the same amount of cost , you can produce more output and hence you increase your revenue. Ebay flipkart and ecommerce giants also avail this.
Economies of scope- the more common inputs products share and more diversified they are, the less average total cost you will incur. In general, we can produce more outputs both in quantity and variety with the same resources.
Examples- road transport costs, newspaper, media, education sector etc. In newspaper, with the same set of journalists, editor, photographer etc, 3-4 types of news can be covered in different segment, each catering to different groups of readers. So the revenue increases.
Economies of agglomeration- agglomeration refers to clusters of population or business activity. The cost reduction firms obtain by locating in proximity to each other.
Examples include knowledge parks, SEZs. All the major hubs are located in one place so the cost of production is comparatively less as transport , labour, raw materials etc are found easily. Automatically the revenue is more.
Economies od scale- it is defined as percentage drop in average cost of production following one percent increase in output. In general, average total cost decreases as output increases.
Examples- big industries, banking, retail industry and likewise where the cost of production is constituted mostly by fixed cost. Also the telecom industry which is highly fixed cost dominated, with the same amount of cost , you can produce more output and hence you increase your revenue. Ebay flipkart and ecommerce giants also avail this.
Economies of scope- the more common inputs products share and more diversified they are, the less average total cost you will incur. In general, we can produce more outputs both in quantity and variety with the same resources.
Examples- road transport costs, newspaper, media, education sector etc. In newspaper, with the same set of journalists, editor, photographer etc, 3-4 types of news can be covered in different segment, each catering to different groups of readers. So the revenue increases.
Economies of agglomeration- agglomeration refers to clusters of population or business activity. The cost reduction firms obtain by locating in proximity to each other.
Examples include knowledge parks, SEZs. All the major hubs are located in one place so the cost of production is comparatively less as transport , labour, raw materials etc are found easily. Automatically the revenue is more.
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