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Profit management is technology enabled, as firms must be quick to respond to rapid changing market and to know the true economic cost of its products and services. Management needs to drive cooperation between different functions of the firm such as sales, marketing, and finance, to ensure the teams recognize the importance of coordinated effort.
While diseconomies of scale are typically associated with large mature firms, similar problems have been observed in the growth phase of small and medium-sized manufacturing companies. Mclean [3] has observed that this can occur once the workforce exceeds around 20 employees. At this point business complexity grows more rapidly than revenue.
Organizational slack occurs when firms opt to employ more resources than are needed to produce a given level of output. Unused capacity results in X-inefficiency. Organizational slack can be explained by the principal-agent problem. In companies ownership and management are separate.
Whereas economies of scale for a firm involve reductions in the average cost (cost per unit) arising from increasing the scale of production for a single product type, economies of scope involve lowering average cost by producing more types of products. Hofstrand notes that the two types of economy "are not mutually exclusive". [6]
There is more than one firm and all firms produce a homogeneous product, i.e., there is no product differentiation; Firms do not cooperate, i.e., there is no collusion; Firms have market power, i.e., each firm's output decision affects the good's price; The number of firms is fixed; Firms compete in quantities rather than prices; and
The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for free trade policies, since some economies of scale may require a larger market than is possible within a particular country—for example, it would not be efficient for Liechtenstein to have its own carmaker if they ...
American aerospace giant Boeing reported Q1 2022 earnings that missed expectations last week, further adding to its stock’s decline which has been on a downtrend since mid-2021 peaks.
Benefits of horizontal integration to both the firm and society may include economies of scale and economies of scope. For the firm, horizontal integration may provide a strengthened presence in the reference market. [5] This means that with the merger, two firms would then be able to produce more revenue than one firm alone.