Fundamentals of Management, 8th ed

(a) Standard economies-of-scale curve

Cost of production per unit ($)

Cost of production per unit ($)

B

Number of units produced

(b) Change in technology that shifts economies of scale

      and may make small-business manufacturing possible

A

Original economies of scale

New economies of scale

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C

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F I G U R E 5 . 4

Economies of Scale in Small-Business Organizations

Small businesses sometimes find it difficult to compete in manufacturing-related industries because of the

economies of scale associated with plants, equipment, and technology. As shown in (a), firms that produce

a large number of units (that is, larger businesses) can do so at a lower per-unit cost. At the same time,

however, new forms of technology occasionally cause the economies-of-scale curve to shift, as illustrated in (b).

In this case, smaller firms may be able to compete more effectively with larger ones because of the drop in

per-unit manufacturing cost.