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Boeing and Embraer entered potential merger talks in 2019 - Leaving Cert Economics - Question 11 - 2021
Question 11
Boeing and Embraer entered potential merger talks in 2019. If a merger were to occur between Boeing and Embraer it is likely they would benefit from Internal Economi... show full transcript
Worked Solution & Example Answer:Boeing and Embraer entered potential merger talks in 2019 - Leaving Cert Economics - Question 11 - 2021
Step 1
Define Internal Economies of Scale.
Answer
Internal economies of scale refer to the cost advantages that a firm experiences as it increases its production. These advantages arise from factors controlled within the firm itself, leading to a reduction in average costs per unit as output rises. This can include efficiencies gained through specialization, better utilization of resources, and improved operational processes.
Step 2
Outline possible Internal Economies of Scale which could arise for Boeing and Embraer if this merger were to occur.
Answer
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Labour economies: The merger may lead to increased specialization of workers, which can enhance productivity. This could help reduce operational costs due to more efficient labor usage.
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Managerial economies: The best managers from both firms may be retained, focusing on their respective specializations. This could streamline operations and reduce administrative and unproductive costs.
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Purchasing economies: A larger scale of production may allow the merged company to buy raw materials at a lower cost due to bulk purchasing, thus reducing input costs.
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Technical economies: Combining resources might enable the firms to invest in more advanced technologies, which could decrease the overall production costs as the firm scales.
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Economies in use of raw materials: By standardizing the aircraft components used, the merger could minimize resource wastage, leading to cost savings.
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Economies in distribution: Post-merger, the new organization might have more revenue points and could optimize logistics, reducing transportation costs.
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Marketing economies: The larger merged entity could spread the costs of marketing over a wider range of aircrafts produced, lowering the cost per unit.
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Financial economies: A larger firm will typically have access to better financing options, which could help in reducing capital costs.