As scale effect (scale yield, size size of, Economies OF Scale) one defines the dependence of the output on the quantity of the assigned factors of production in the production theory of the management economics and in the (Marginal note) the scale yield corresponds to the upward gradient of the level production function. It indicates, around which amount the output changes, if the employment of all factors of production (marginal) is increased by a certain factor. On the other hand one speaks of (marginal yield) with partial factor variation, if thus only one factor is quantitatively marginally changed. Scale effects are to also distinguish from the group and density advantages.

Kinds of scale effects

One speaks of constant scale effects, if an increase of the employment factors x_1, x_2,"Â… entails around a given factor an increase of the output around the same factor (scale elasticity equal 1), if thus to the production function f applies:

f (A \ cdot x_1, A \ cdot x_2, \ dots) =a \ cdot f (x_1, x_2, \ dots)

Such a result is to be expected about, if a certain production engineering to larger extent is used. In the same measure, how then increase the quantities required of the employment factors, also increases the yield quantity of the final product.

Of positive scale effects (or rising scale yields) one, if the output rises more strongly, speaks as the assigned factors (scale elasticity more largely 1):

f (A \ cdot x_1, A \ cdot x_2, \ dots) >a \ cdot f (x_1, x_2, \ dots)

For business practice interesting is above all the case of the positive scale effects, whereby with the output the neighbouring costs sink: With relatively low outputs both the unit cost prices of an individual produced copy and/or a production unit are relatively high, and the neighbouring costs (thus the costs of the last manufactured unit). Both sink with rising output. Mathematically expressed:

<math> \ frac {\ partial c'} {\ partial q} < 0</math>

Here stand c' for the neighbouring costs and q for the provided quantity.

Positive scale effects, thus sinking neighbouring costs, are the economic explanation for the mass production.

In addition, they arise with the production practically all public goods such as or electricity. In industries with for an unlimited period rising scale effects (only in the theory the one which can be found) complete the competition leads to the fact that no more production enterprise can cover its manufacturing costs (which is also purely mathematically provable). Therefore often (usually national) a monopoly prevails in such industries.

Negative scale effects (or falling scale yields) (scale elasticity smaller 1) occur for example in agricultural production, if with rising employment of the factors of production such as work and fertilizer no increased returns are more possible around the same factor.

Causes for positive scale effects

Scale effects can be attributed to savings with the mass production:

• Use of non-human or non-animal workers: Employment of wind and water power, steam engines as well as burn and electric motors.
• Advantages from the division of labor, with which complex operational sequence are divided into simple, activities which can be repeated easily
• Savings by the use of larger means of production, like e.g. larger furnaces and tanks
• Rationalizations by the employment of automated means of production (robots)
• Use of standardized parts and centralized reserve attitude
• Improved lot size tuning with sequential Fertigungsstufen
• Learning curve effects

Consequences

Positive scale effects justify a "natural monopoly". They are called also as reason for concentrations of enterprise. With positive scale effects a company with a Kapitaleinsatz of 2 millions can produce "€ more than two companies with a Kapitaleinsatz of in each case 1 million "€. In the competition thus the large company succeeds against the two small. If one updates this tendency, ever larger companies remain in the respective industries less and less, whereby the competition is weakened within the industries. Since competition is however an important condition for the efficiency of markets, market failure can be justified in such a way by rising scale yields.

As reason for trusts or co-operation they are however disputed, since positive scale effects cause a manufacturing plant. This would be only conceivable during the following specialization of the private firms (instead of in two enterprises in each case two of products to produce, only in each case one product per manufacturing plant one produces).

Related links

• On-line script by Professor Dr. Wilhelm Lorenz: http://www.mikrooekonomie.de/

This text is partly based on the micro economics glossary of professor Wilhelm Lorenz and is licensed under GNU-FDL.

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