Economics in Trading Essay

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Economies of scale comes up when a good or service can be produced on a large scale while at the same time there is no decrease in the input on average. This implies that as a company grows at the same time the production units increase a company has a better chance of decreasing its costs. This theory suggests that there can only be economic growth upon realization of economies of scale. A simpler meaning of economies of scale is doing things in a more efficient manner with increasing the speed or size of an operation. They often come about with fixed capital which is brought down per production unit while the design capacity goes up.

Economies of scale are quite practical concept that can be used to give an explanation to world phenomena. Economies of scale hence exist within transport industry. For instance when transport modes are unbundled legally, bidding is made open for both the multi-mode and single mode operator companies.

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Whereas in current situation there is a lot of competition hence it is difficult for a particular company to specialize in one single transit service due to comparative advantage created by multi-mode companies that are incumbent.in such a situation as a result of fewer potential bidders the befits from the competition on the market would be lower. On the other hand one single multi-mode transport company can exploit the potential in the scope as well as the scale economies.it is however important to note that synergies can not totally be used even if this single mode units are under the ownership of one single company. This means that legal unbinding suffices to remove the barriers of entry for single -- mode operations but a=it is not a guarantee to the use of scale and scope economies (Farsi, Fetz, & Filippini, 2012).

The choice between two tendering options is quite an important policy question with important impacts on the….....

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