Page 12 - CL Industry Analysis
P. 12
Economies of Scale
As a company grows and production output increases, a
company will have a better chance to decrease its costs
especially as specialisation and the division of labour take
effect.
Economies of Scale Inputs:
Lower input costs: When a company buys inputs in bulk -
for example, potatoes used to make crisps, it can take
advantage of volume discounts. Tyrrells however, grow their
own ‘heritage’ potatoes which produce a better chip than
modern bought-in ones.
Costly inputs: Some inputs, such as R&D, advertising,
managerial expertise and skilled labour are expensive, but
because of the possibility of increased efficiency with such
inputs, they can lead to a decrease in the average cost of
production and selling. Tyrrells do not only produce their
own potatoes but also a variety of other vegetables for use
in the production of finished products and sauces. If a
company is able to spread the cost of such inputs over an
increase in its production units, economies of scale can be
realized.
Specialized inputs: As the scale of production of a
company increases, a company can employ the use of
specialized raw materials, labour and machinery resulting in
