Econ600 | Economics homework help

50 words agree or disagree to each questions 

Q1.

To begin this discussion post, we must first understand what economies of scale is.  Businesses that are able to lower their average costs by increasing the scale of their operation are said to have economies of scale (Samuelson & Marks, 2015).  This is the very reason why companies such as Walmart, Costco, and Sam Club are able to sell their products at such low prices and still make a profit.  When it comes to economies of scale, bigger really is better for companies, the larger a company is and the longer it’s been around, the greater the economies of scale (O’Connell, 2018).  Walmart did not get to where it is today overnight, since its creation in 1962 Walmart has been able to grow their business to where the impact of economies of scale becomes more pertinent.  For a good example of economies of scale, there’s no beating Walmart, with a market capitalization of $293 billion and revenues of $503 billion, Walmart is the largest general retailer in the U.S. (O’Connell, 2018).  Walmart is able to achieve this due to its massive size and influence on the market.  By keeping the companies cost low when purchasing or producing products, they in turn, are able turn a profit even when selling their products at affordable cost to the consumers.  The company’s economies of scale are derived from a unique ability to buy its merchandise in bulk, usually at significant discounts, and Walmart forces suppliers to accept low prices to remain in its good standing (O’Connell, 2018).  

O’Connell, B. (2018).  Economies of scale: definitions, types and examples.  Retrieved from https://www.thestreet.com/personal-finance/education/economies-of-scale-14769645

Samuelson W.F. & Marks S.G. (2015). Managerial Economics. Hoboken, NJ: Wiley & Sons Inc

Q2.

Economies of scale are cost advantages that companies attain because of the scale of their operation.  For this week’s discussion we are asked whether economies of scale have any relevance to such companies as Wal-Mart.  Assuming that “such companies” is used to reference Wal-Mart’s size in terms of revenues and number of store locations as well as Wal-Mart’s participation in the retail market, the answer is an emphatic yes.

Economies of scale are relevant to Wal-Mart in many ways.  I will discuss two here.  First, for sellers, Wal-Mart shelf-space is a prized commodity. The market for Wal-Mart shelf space is extremely competitive.  Due to the number of store locations and the resulting number of consumers Wal-Mart reaches, Wal-Mart commands significant leverage when negotiating purchase price with its suppliers. If sellers want their product on Wal-Mart’s shelves, they must either accept lower prices or risk losing out to competitors.

Second, Wal-Mart and similar companies can achieve economies of scale based on their footprint.  For example, Wal-Mart has invested in its distribution network. It has roughly 143 million square feet under roof at its distribution centers with an average distance of 124 miles to its stores.  This allows Wal-Mart to mix its general merchandise and dry goods grocery items in the same distribution centers.  This allows Wal-Mart to reduce its transportation costs.  The number of DCs located in relative proximity to its stores allows Wal-Mart to carry fast moving inventory at most of them.  This reduces total inventory and the inventory carrying costs associated with it.

Together, these practices have allowed Wal-Mart to reduce to total costs, therefore achieving economies of scale.