Respected Madam,
I am grateful for the opportunity that your company has provided me, and I will do my very best to avail the opportunity. I have studied economics from my middle school to obtaining a master’s degree in the subject. I have learned several concepts for the manufacturing sector, and the service business over the years, and many concepts helped me making rational decisions in my life, and work life. One concept that stood out for me, and can be very important for your company as well is the diseconomies of scale. However, before defining the concept it is important for the user of the concept to understand the scale of production. The scale of production is the total production a company. This production can be increased or decreased by adding more fixed or variable factors. In the short-run, however, only the variable factors can be increased to increase the production. It is considered the more the product; the highest will be the profitability of the company. However, for economists this is not always true. For example, a firm may increase the profit by increasing the production and sales till a certain production scale. However, there will come a point at which the additional production is going to increase the costs faster than the billing or the total sales. This is the point of diseconomies of scale. Producing beyond this point is going to be less profitable for the company, and increasing more production is going to reduce the total profits of the company. The average cost of a company follow a behavior of U-Shaped curve. It is a hyperbola. The point from where the diseconomies of scale start is the point of curvature of the average cost of the company. Hence, I would like to suggest the company that it should identify this point of production or scale of production from where diseconomies of scales start to set. The firm should always keep its production to this point, and should not try to increase the production beyond this point in the short run. However, in the long run, the firm will face a new average cost curve, and it will be able to increase production by increasing the fixed factors of production such as capital and land. So a firm’s long run point of diseconomies of scale or scale of production at which diseconomies of scale set in is different from the point of diseconomies of scale in the short run.
Ms Doe, I urge the company’s production specialists, and production supervisor to be wary of this point, and always produce till the point where the average cost curve is the lowest. The conventional approach of producing as much as the company can is no longer profitable, and many firm have found that out that it is actually adverse for the company to go beyond that point. The major reason for the diseconomies of scale is the diminishing laws of marginal returns i-e each variable factor added is going to be less productive due to congestion, shortage of tools, and hustle and bustle in the working environment which is going to disrupt the productivity of the workers, and their output is going to be low.
I will help the company achieve the optimum level of the production, in order to fuel the productivity and growth of the company.
Regards,
References
Sloman, John, Alison Wride, and Dean Garratt. Economics. Harlow, England: Pearson, 2012. Print.
