Economies & Diseconomies of Scale
Economies and Diseconomies of Scale
A case for McDonalds & Movie Theaters
Economies of scale are defined as ‘forces that reduce a firm’s average cost as scale of operation increases in the long run. The opposite of this would be diseconomies of scale, meaning ‘forces that may eventually increase a firms average cost as the scale of operation increases in the long run. Most every company has both the economies and diseconomies of scale that can be analyzed. In the following paragraphs I will tell of some of these scales in both movie theaters and the ever popular McDonalds.
McDonalds is the 8th most valuable brands in the world. They have approximately 32,000 restaurants located in over 120
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Movie theaters started with one screen per theater. Now days, we have moved into what can be called Megaplexes which are movie theaters that can have up to 30 constructed screens. Many movie suppliers do not like this because they cannot provide the theaters with movies to fill their theaters. Most movie suppliers do not like more than 15 screens per theater. Movie theaters make half their money on the concession stands within the complex. If the owners of the theater stagger the movies it does a couple of things. It elevates the congestions that might occur at the beginning of the movie. Some Suppliers of these movies limit the supply of popular films to the megaplexes. The owners of the megaplexes may not have movies to fill the constructed screens, so they have resorted to holding live sport events on the big screen. This would be some of their diseconomy of scale. Some megaplexes do not good great foot traffic due to their location but yet there are some that are located at shopping malls which has much more foot traffic. Another thing that is hurting the movie industry is the increase home theaters that people are building in their homes. The purchase of home theater equipment has increased over the years. Consumers also have certain times that are peak times that they like to go to the movies. Creating a shorter time to show the movies and limited time slots for movies.
The economy of Scale is