Analysis of Cost Curves and Organizational Structures in Economics

This economics assignment delves into the analysis of the long-run average cost curve, explaining its u-shaped nature due to economies and diseconomies of scale. It examines the advantages of small organizations, such as innovation and consumer proximity, while also exploring the factors that contributed to the decline of large organizations between 1974 and 1998, including the rise of entrepreneurship and technological advancements. The assignment further discusses how globalization and increased competition have favored large companies in recent times, emphasizing the importance of size for economies of scale, financial resources, and brand recognition. The paper includes references to support the arguments made regarding the shape of the long run average cost curve, the advantages of small organizations and the changes that have favored the corporate giants.

Economics
Name of the Student: RICK ROOPAN
Name of Facilitator: Sean Reid
Course Number: BUSINESS ECONOMICS

Normal shape of an organization long average cost curve
The shape of an organization with regards to the long average cost curve is generally u-
shaped. On the contrary, it can be said that the long run average cost curve is typically u-
shaped because of the diseconomies and economies of scale. The concept of diseconomies of
scale suggests a situation where the economies of scale no longer functions for an
organization. On the other hand, the diseconomies of scale takes place when the long run
average costs of a firm increases more than what is expected.
Average Cost
20
20
Long-run cost
curve
10 20 Output
It has been also witnessed that over the life span of a company the long average cost curve is
made up of a sequence of short-run cost curves. The exact reason behind the u-shaped of the
long average cost curve because the output tends to increase so the cost per unit declines after
that it reaches a minimum point then it starts to go up that makes u shape (David Myers
CEcD, 2015). It has been also observed that the cost curve tends to fall due to the economies
of scale. If an organization continues to expand then the economies of scale results into the

diseconomies of scale and the cost curve starts climbing up. On the other hand, although the
shape of the long run average cost curve tends to be u shaped still it is flatter, unlike the
short-run cost curve. The long-run average cost curves are u-shaped because of the
economies and the diseconomies of scale. When the firms tend to expand then they obviously
become difficult to co-ordinate and control. When the economies of scale are present before a
threshold level of production and the diseconomies of scale is below this specific level then it
gives birth to the long-run average cost curves.
When an organization also expands it experiences both external and internal economies of
scale.
Main advantages of the small organizations
The key advantages of the small organizations over the large organizations are as follows. It
is known that the small organizations tend to be quite innovative and try the things which are
new as they are not at all restricted by the past accomplishments and experiences. Firstly, one
of the main advantages of the small organization is that they are quite close to their
consumers and it is one of the critical factors for being immensely successful in the
marketplace. A business which is small can meet with their consumer on a day-to-day basis
and develop a friendly and personal relationship than a big company. Secondly, the structure
of the small companies also tends to be quite lean. There are also few layers of management
along with less number of employees (Dornhaus, Powell and Bengston, 2012). With a limited
number of employees helps the small companies to be more flexible, they can also make a
decision quickly and then can also adapt rapidly when compared with the big companies. On
the other hand, the lean structure of the small companies helps to maintain a personal and
friendly between the customers as well as in between the employees. Lastly, in the small

companies, everyone feels that they are part of a family. The workers in the small companies
are treated like the members of a family. When the workers feel that they are a part of the
family then a sense of belongingness comes which gives them an immense amount of energy
during the rough times.
The factors for the demise of large organization between 1974 and 1998
The large companies collapsed in the period between 1974 and 1998 because of the several
factors. One of the main reasons for the downfall of the big companies' in the marketplace is
due to the rise of the entrepreneurship at an alarming rate and also for the deregulation.
Furthermore, the innovation also led to operating as lower costs for the start-ups. There were
a large number of companies who were using the same product for almost a decade whereas
there were some of the start-ups that introduced innovation in their product line and reduced
the market share of the large organizations. It has been witnessed during the 1990s the
introduction of the internet and the appearance of the personal computers by a large number
of start-ups have been quite successful which overshadowed some of the largest players in the
marketplace such as, IBM. On the other hand, it was projected that the Europe and U.S. could
be have emerged as the market leaders but they failed to do so at that point in time as they
became less competitive (Amit and Zott, 2012). The small organizations quickly became big
organizations and they contributed a lot to the economy so it becomes one of the strongest
reasons for the downfall of the big companies as they failed to live up to the expectations of
everyone. The small companies were capable of competing with the large companies because
of their innovation. It has been noticed that over the time small start-up companies became
one of the largest companies the world can ever get one of the prominent examples that can
be taken account is Apple, Inc.

Changes that have favored the corporate giants currently
The changes with regards to the globalization and increase in the immense amount of
competition have forced the big companies to introduce some of the new techniques and
innovation that has made them stay in the marketplace. In the present times the size matters
for the big companies to a large extent. The increase in the size of the companies is producing
a global market with regards to the acquisitions and mergers. Some of the studies show that
during the 1990s a list of big companies contributed 32% towards the GDP of America
whereas in 2013 it rose up to 58% and now in the current time it is calculated as 64%
(Boswell, 2014). The growing size has been one of the biggest elements that favored the big
companies because of the profitability. The profit margins for these types of companies have
increased in direct relative amount to the concentration in the marketplace. On the contrary,
the start-ups recently are facing trouble to keep up with the large companies. The big
companies are also employing less number of people despite having merged with other
companies. Furthermore, the big companies have also understood the importance of
innovation and increase in size with the changing environment. When the big companies
considered expansion it has helped them to minimize their costs and catering the needs of
their potential consumers in the marketplace.
The importance of size for an organization
In the recent times, it has been observed that size is quite important for the companies
especially for the larger companies. Some of the advantages that are enjoyed by the
organizations who tend to expand are as follows. Firstly, the economies of scale the suppliers
generally provides breakup in terms of price for the retailers and the businesses those who
can buy higher quantities of products. On the other hand, the companies who expand tend to
have a lot of financial resources for taking a massive advantage out of the price breaks. These

types of specific organizations also tend to set low prices than the companies which are small
for earning a huge amount of profits (Goffee and Scase, 2015). It is also applicable for the
companies who are associated with the manufacturing of products. These types of companies
will produce a large amount of products at a unit cost which is relatively quite low. Secondly,
when the expansion of a firm happens then it gives rise to the indivisibilities. When the
output of an organization increases then the indivisible factors which were used by the firm at
below capacity can be utilized to the fullest by reducing the cost. Furthermore, it has been
also observed that an organization enjoys the marketing indivisibilities when expansion takes
place. Lastly, it is needless to say that increase in size also gives organization good brand
recognition than before.

References
Amit, R., and Zott, C. (2012). Creating value through business model innovation. MIT Sloan
Management Review, 53(3), 41.
Boswell, J. (2014). The Rise and Decline of Small Firms (Routledge Revivals). New York:
Routledge.
David Myers CEcD, M. A. (2015). Economies of scale. Economic Development Journal,
14(3), 11.
Dornhaus, A., Powell, S., and Bengston, S. (2012). Group size and its effects on collective
organization. Annual Review of Entomology, 57, 123-141.
Goffee, R., and Scase, R. (2015). Corporate Realities (routledge Revivals): The Dynamics of
Large and Small Organisations. New York: Routledge.