ECONOMIES AND DISECONOMIES OF

SCALE IN AQUACULTURE

NIMNAGA.KMSC IF

ECONOMIES OF SCALE

• Economies of scale is a long run concept and refers to reductions in unit cost as the size of the facility and the usage levels of other inputs increase

• Refers to the cost advantages that an enterprise obtains due to expansion

Common sources are….

• Purchasing: bulk buying of materials through long-term contracts

• Financial: obtaining lower interest charges when borrowing from banks

• Managerial: increasing the specialization of managers

Common sources are….

• Marketing: spreading the cost of advertising over a greater range of output

• Technological: taking advantage of returns to scale in the production function

• Learning by doing

Economies of scale in aquaculture business can result from the adoption of larger pieces of equipment or more advanced technologies

Economies of scale and Returns to scale

Economies of scale• Refer to a firm’s costs

Returns to scale• Describe the

relationship between inputs and outputs in a long-run production function

Returns to scale

• Constant

• increasing

• Decreasing

If the firm is a perfect competitor in all input markets, and thus the per-unit prices of all its inputs are unaffected by how much of the

inputs the firm purchases , then…

•Economies of scale if and only if it has increasing returns to scale•Diseconomies of scale if and only if it has decreasing returns to scale•Neither economies nor diseconomies of scale if it has a constant returns to scale

the firm has…

DISECONOMIES OF SCALE

A firm that increases its scale of operation to a point where it encounters rising long run average costs is said to be experiencing internal

diseconomies of scaleThe concept is the opposite of economies of scale

Causes for diseconomies of scale

• Office politics

• Top-heavy companies

• Duplication of effort

• Communication costs