Fixed Costs and Economist Essay

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Efficiency and Cost of Production

Production efficiency is defined as the level at which a company is no longer capable of producing additional amounts of a commodity or good devoid of lowering the level of production of another product. Efficiency in production is attained and realized when a product is manufactured and formed at its least average total cost. It outlines sufficient production devoid of wasting important resources (Investopedia, 2016). In delineation, economies of scale are the factors that make the average cost of commodity production and manufacture to decrease as the volume of its output rises (The Economist, 2008). Internal economies of scale are cost savings that accrue to a company irrespective of the market, industry or setting in which it operates. On the other hand, external economies of scale are those that profit a company owing to the manner in which its industry is organized (The Economist, 2008). In order for Autoedge to attain economies of scale, it is suggested that the firm ought to lay emphasis in obtaining ways to curtail or disseminate fixed costs so as to diminish the cost incurred for every unit as the quantities of production rise. Fixed costs are outlays that remain at a predetermined price, and do not vary when the volume of production increases or declines.

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Fixed costs consist of equipment, land, overhead, and wages. Regardless of whether products are manufactured or not, these fixed costs will still be incurred by the firm.

There are a number of suggested conceptions on how Autoedge can achieve economies of scale and get to the highest levels of efficiency. These include bulk procurement of raw materials, employing highly competent personnel and guaranteeing proper and satisfactory education and training. Other recommended approaches encompass the procurement of more capable equipment, expansion of the manufacturing process, acquisitions or mergers with smaller tech companies and making certain that there is incessant open communication within the supply chain (Carlino, 2012). For instance, relocation to the United States implies an increase in wages, which in turn increases the fixed costs incurred by the company. In an endeavor to execute such changes to its system of manufacturing operations, the company could conceivably have the capacity to sustain the prevailing operation plant for production. In particular, this is as a result of the lower costs incurred in production. What is more, the main consumers will not have to face increased prices….....

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