Economies Of Scale In Microeconomics

If more capital investment is there in the company less will be

Through this practice, occupations found in developed countries, are grant to workers in developing countries as businesses can pay wages at a lower rate. By reducing the cost wage expenses, companies capable of minimizing prices, therefore they are able to provide goods and services at a cheaper rate (Huwart & Verdier, 2013). Allowing foreign operating businesses to obtain a competitive advantage over the domestic businesses of Canada. As these companies become more desirable for cheaper goods than their competitors. Considering this, Canadian businesses are placed in jeopardy as they have a restricted presence in the global market as a product can be obtained with similar quality with lower expenses.

Factors, in this case, being basic tools of production. It states that a country’s abundant factors will cheaper to export its scarce factors easy to import, or in other words, goods will be produced where it is cheapest to produce them (Oatley, 2014, p. 52). Countries like the U.S., for example, have lots of capital with little labor, while China is the opposite. These different factors shape the cost of production, as these countries abundant factors will be cheaper to employ than its scarce factors. For example, the U.S. has a comparative advantage in computers and not shirts because the U.S. is abundantly endowed with physical and human capital and poorly endowed with low skill labour (Oatley, p. 53).

Besides this, monopolist tend to produce good in the small quantity and charge in high price; which results in deadweight loss and eventually decrease social surplus or total surplus. 3. Monopolistic Competition This kind of industry stands in the middle between the perfect competition and monopoly. It has many buyers and sellers producing slightly different products which can be easily substituted. Benefits Diversities of goods and services are out there for consumers to choice, which can produce positive consumers’ surplus.

The attractiveness is the overall profitability of the industry whilst unattractiveness drives down profitability. Thus using this model, it implies that profitability or the return is a constant integer, across firms and industries; however various studies established that different industries have different levels of profitability due to their diverse structure and circumstances they operate in. The model can also be utilized to develop an edge over competitors and rudimentarily for identifying a niche whether it is potentially feasible to manufacture new products, services or open new

Along these lines, unemployment may decrease, as this has different favorable circumstances, for example, lower government using on profits and less social issues. However, this phenomenon includes a number of different expenses. Firstly, if economic growth is unsustainable and is higher than the long run pattern rate, inflations are liable to be seen. An increase in economic growth could prompt an equalization of issued installments. In case the expanded customer expenditure causes further development, there will be an increase in the import sector.

6. The law of diminishing marginal returns means that, at a certain point, hiring an extra factor of manufacture causes a comparatively smaller increase in output. The law of diminishing marginal returns occurs in the short run when one factor is fixed (e.g. capital). If the variable factor of production is increased (e.g. labour), there comes a point where it will turn out to be less profitable and therefore there will eventually be a decreasing marginal and then average product. This is because, if the capital is stable, additional employees will eventually get in each other’s way as they are trying to increase production.

Latam with less than 1% net profit margins has less room for execution failure than AAL with 6,66% profit margins considering small miscalculations or mistakes can be amplified in a way that leads to tremendous losses for shareholders. Once the margins reflect the firm’s production function, if margins are low, some actions such as reduce expenses, review the prices and identify the most profitable items to concentrate on achieving higher sales targets for them, could be done to improve the net profit. Asset turnover: This ratio is calculated indicates how efficiently management is able to drive sales from company assets in other words how effectively a company converts its assets into sales. The asset turnover ratio tends to be inversely related to the net profit margin as shown

In fact, governments will regularly present motivators to organisations as form of exclusions, sponsorships and duties to draw in interest in these nations. This FDI have its own benefits and disadvantage for the developing nation (Cavusgil, Knight, et al, 2014). Benefits of FDI in Developing Nation Financial growth in developing nation Through FDI developing nation can encourage economic development that is required by the country through making more favorable situation for its people as well as give benefits to industries within country (Kinda, 2010). Trouble-Free Global Trade Normally, a nation has its own import levy, and due to this trading is difficult.

More competition, it can be argued, puts downward pressure on prices and forces firms to use their resources in a more efficient manner, encouraging firms to reduce their average total costs by better utilization of resources. But what if the total demand for a good in a particular market is not high enough to necessitate more than one firm producing the good in question? In other words, what if having more than one firm means that each individual producer will have higher average total costs than a single firm would have? Such a scenario exists if the market demand curve intersects a monopolist’s average total cost curve in the range in which economies of scale are experienced, in other words where ATC it still decreasing.