Today's Question
Economies of scale mean average costs FALL as output increases. Diseconomies of scale mean average costs RISE with output. Why do large retail chains like Walmart have cost advantages over small local shops? And why might a small craft brewery actually have LOWER costs per bottle than a giant brewery for specialty beers?
Model Answer
Walmart: Bulk purchasing discounts, specialized warehouses, efficient logistics spread over millions of items. Economies from size. Craft brewery: Giant breweries have high bureaucracy, can't quickly adapt recipes, and their equipment is designed for mass production - switching to small batches is inefficient. Sometimes 'small and flexible' beats 'big and rigid' - diseconomies of scale in adaptability.
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