Microeconomics Assignment: Economic Significance of Scale Economies, Operational Efficiencies, and Research and Development

This microeconomics assignment explores the economic significance of scale economies, operational efficiencies, and research and development. It discusses the proposal for a business combination between Microsoft and Yahoo, focusing on the benefits of scale economies in the advertising platform. It also examines the importance of operational efficiencies in improving financial performance and the potential for innovation through research and development.

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Microeconomics
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Microeconomics assignment
Economic significance of the article
Scale of economies
The article is written to the Yahoo board on behalf of the Board of Directors of the
Microsoft for making a proposal for the business combination of yahoo and Microsoft. The
proposal which is made by the Board of Directors of the Microsoft is that it would be
acquiring all the shares of Yahoo. Microsoft would be then paying Yahoo either in terms of
cash or in terms of common stock. The proposal states about the scale economies which is
the cost advantages that the organization obtains as a result of their scale of operations where
the cost per unit decreases with increasing scale. The economies of scale are referred to the
reduced costs per unit which arises from the rise in total output of any product. In economies
of scale, the specialization of the labor along with technology will help in boosting the
production volumes. Secondly, the reduced per unit cost will come from the bulk orders
from the suppliers, low cost of capital or from large advertising buys. Spreading the cost of
the internal function across more units produced and sold will help in reducing cost (Baumers
et al . 2016). The proposal states that the combination of Microsoft and Yahoo is related to
the economies of scale of the advertising platform. It will comprise of cooperation which is
present across both the search and the non-search related activities which will be
strengthening the value for both the publishers and the advertisers. This combination will
allow for consolidate spending of the capital.

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Figure 1 Scale economies
Operational efficiencies
The proposal also states about the operational efficiencies which can be defined as
the ratio between the outputs gained from the business along with the input in order to run a
business operation. When the operational efficiency improves, the ratio of output to input
also improves. It is the capability of an enterprise for delivering products or the services to
the customers in one of the most cost-effective manner possible while ensuring that that they
provide high quality of products, support and services (Kortmann et al 2014),. Operational
efficiency encompasses various types of strategies as well as techniques which is used for
accomplishing the goal of delivering the quality goods for the consumers in one of the most
cost-effective manner. The utilization of resources, production, distribution and the inventory
management, all comprises of the operational efficiency. In order to achieve operational
efficiency, it is important to provide the employees with consistent access of the information,
make it easier to collaborate and also streamline communications with the consumers. In
order to boost the productivity, the one must benchmark the performance, identify and
eliminate waste and then monitor and manage the performance. The proposal states that the

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operational efficiency will help in elimination of redundant infrastructures and the operating
costs will help in improving the financial performance of the organization.
Significance of Research and development
The proposal also states that the combined talent of the engineering resources can be
used for focusing on the research and development priorities which comprises of the single
search index and the single advertising platforms. New levels of innovation can be unleashed
which will also deliver enhanced user experiences and the capabilities of new advertising
platform. Most of the breakthroughs are the function of the engineering scale that presently
neither of the company has its own. The research and development also known as R & D
refers to those innovative activities which are undertaken by the governments in order to
develop new products as well as services. It also helps in improving the existing services or
the products. It is the process through which the company works in order to gain new
knowledge which it might use to create the new kinds of technology, services and products
which it will be either using or selling. Research and development is stated as the systematic
activity which takes into account both the basic and the applied research. The R&D also helps
in discovering solutions for all the problems related to the creation of new products.
(Baumers et al. 2016). The research and development might also result in ownership of the
intellectual property which includes patents. Along with creating innovative products and by
adding features to the old ones, the research and development will help in connecting
different parts of the strategy of the company and the business plan which comprises of the
reduction of cost and marketing. One of the advantages of the research and development is
the possibility of the increased productivity or the formation of new product lines.

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Reference list
Baumers, M., Dickens, P., Tuck, C. and Hague, R., 2016. The cost of additive manufacturing:
machine productivity, economies of scale and technology-push. Technological forecasting
and social change, 102, pp.193-201.
Kortmann, S., Gelhard, C., Zimmermann, C. and Piller, F.T., 2014. Linking strategic
flexibility and operational efficiency: The mediating role of ambidextrous operational
capabilities. Journal of Operations Management, 32(7-8), pp.475-490.