Effect of scale

Any company, planning its long-term work, should not only combine various factors of production, but also change their number, correctly applying the scale effect. As everyone knows, changing different factors in one proportion leads to completely different results. By definition, the scale effect in the economy is the ratio between the change in the output of commodity output and the cost of production factors.

The mathematical property of this production function allows us to describe the relationship between the volume and the effectiveness of resources. This concept answers the question of what happens to the release of products at a time when resources (factors) increase in equal proportion. Since the scale effect implies that these factors are variables, the whole concept of this indicator is quite long-term.
There are the following options for this parameter, depending on the value of the obtained indicator:

• Constant or unchanged effect, in which the output volume changes in the same proportions as the factor costs;
• Positive or growing - with it, the output increases much more than the costs of production factors;
• Negative or reducing - with it, the output volume increases in a much smaller proportion than the factor costs.

The effect of scale of production is determined by the following phenomena:

1. The absence of the law of diminishing returns. All factors are variables.
2. Insufficient intensity of application of some factors. In this case, the invariance of their ratios is assumed.

Preservation of a constant factor ratio for any production and level of output of commodity products allows us to clearly trace the manifestation of the expected economies of scale. For this, it is necessary to analyze the obtained isoquant map. In the case when the isoquant is approaching with the same proportion of the increase in factor volumes, this indicates a positive scale effect; Well, if they have dispersed, then there is a negative effect; If they keep their step, then a permanent effect is obtained. In fact, there are no laws that regulate the direction of the action of this indicator, and its definition can only be obtained empirically.

There are certain factors that favor the growth of the impact of scale:

• The growth of labor productivity (with its deep division);
• Size factor (production of more powerful products while maintaining the available technology);
• Use of the latest technologies and modern technology;
• Maximum capacity utilization;
• Use of specialization in management and more skilled labor.

There are also factors that counteract the growth of this indicator:

• Difficulties in coordination and management;
• Increased accident rate and the appearance of bottlenecks;
• Increase in costs of sales and transportation costs;
• Increase in administrative expenses.

The duration and nature of the scale effect is always determined by the specifics and peculiarities of the technology, therefore, for an industry, some optimal production volume is characteristic . The main issue in the organization of some kind of business is the question of which enterprises will become more effective: small or large. The concept of the magnitude of the scale of an enterprise is determined by the volumes of the corresponding sales market. The growing economies of scale often arise when large enterprises have large opportunities. A typical example of such production is the aviation industry.