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A Look at Mcdonalds and the Movies Economies and Diseconomies of Scale

In: Business and Management

Submitted By RobertCC
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Pages 5
A look at McDonalds and the Movies
Economies and Diseconomies of Scale
Student
March 5, 2013
Principles of Microeconomics

Scale Economies and Diseconomies at McDonalds: How does having a menu that is uniform around the country provide McDonald’s with economies of scale?
McDonald’s use of a uniform menu around the country helps to provide it with economies of scale. “What determines the shape of the long-run average total cost curve… is scale” (Krugman & Wells, 2013), the size of a firm’s operations is often an important determinant of its long-run average total cost of production. Firms, like McDonalds, that experience scale effects in production find that their long-run average total cost changes substantially depending on the quantity of output they produce.
There are increasing returns to scale (also known as economies of scale) (Krugman & Wells, 2013) for companies, like McDonalds, when long-run average total cost declines as output increases. On the other hand there are decreasing returns to scale (also known as diseconomies of scale) for companies like McDonalds, when long-run average total cost increases as output increases.
Economies of scale means that something is made cheaper when it is produced in great quantities spreading the average total cost over a larger quantity. For McDonalds the uniformity of its menu means that it can produce large quantities of products and spread its average total cost over a large quantity and reduce the long-run average total cost for its products, thus they make the products for their uniform menu cheaper.
McDonald’s use of a uniform menu gives them a larger output level and the ability to specialize workers task. This means that McDonald’s employees can limit themselves to more specialized tasks, becoming more skilled and efficient at doing them. By using a uniform menu…...

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