Microeconomic Analysis

Running head: Microeconomic Analysis
MICROECONOMIC ANALYSIS
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Microeconomic Analysis
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Concept of economies of scale........................................................................................................2
Contribution of economies of scale in profit maximization............................................................3
Contribution of economies of scale in TESLA................................................................................4
Conclusion.......................................................................................................................................7
Reference list...................................................................................................................................9

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Microeconomic Analysis
Introduction
In the modern business, using the economics of scale is one of the important aspects and
most of the firms are depending on the economies of scale in order to expand them in the
international market. This is because the economies of scale provides the benefits of cost
minimization in long run as increasing the production of products will shift the LRAC to fall.
However, the study is significant in the sense that it will highlight the strategies taken by TESLA
in order to increase the production of vehicles by taking the advantage from economies of scale.
The main aim of this study is to highlight the contribution of economies of scale in increasing the
sales through online business.
Discussion
Concept of economies of scale
Economies of scale are cost advantage situations that are experienced by the firms when
it increases the level of output. Due to the presence of inverse relationship among per unit fixed
costs and quantity of output, the economies of scale exists. Greater the quantity of output
produced less is the price of per unit fixed costs. However, the economies of scale are also
significant in reducing the variables costs of the products that are being produced.

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Microeconomic Analysis
Figure 1: Characteristics of economies of scale
(Source: Created by Author)
Contribution of economies of scale in profit maximization
From the above figure, the contribution of economies of scale can be highlighted as six
main categories likely cheaper capital, spread of risk, reduction in the production costs, efficient
level of production, buying in bulk, reduction in the labor costs. Through the incorporation of
above-mentioned factors, the companies can increase the quantity of goods in the end. However,
in the long run, the development of better technological up gradation, the companies will be able
to minimize the long run variable costs and per unit fixed costs. However, the reduction in the
logistics costs will allow the companies in storing their inventories that will increase the future
demands from the economy. The capital becomes cheap, it induces the development of
resources, and firms can invest better technologies so that the production within the economy
will definitely increase in the end.