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Firms within the aircraft industry can benefit from economies of scale - Leaving Cert Economics - Question 4 - 2016
Question 4
Firms within the aircraft industry can benefit from economies of scale. Explain the term economies of scale and provide one example for a firm in the aircraft indust... show full transcript
Worked Solution & Example Answer:Firms within the aircraft industry can benefit from economies of scale - Leaving Cert Economics - Question 4 - 2016
Step 1
Explain the term economies of scale
Answer
Economies of scale refer to the cost advantages that firms experience as they increase their level of production. As a firm produces more output, the average cost per unit typically decreases. This reduction in average costs occurs due to factors such as more efficient use of resources, spreading fixed costs over a larger number of units, and potential bulk purchasing advantages. In the context of the aircraft industry, larger firms can scale their operations effectively to minimize costs associated with production, maintenance, and operational efficiency.
Step 2
Provide one example for a firm in the aircraft industry
Answer
An example of a firm in the aircraft industry benefiting from economies of scale is Boeing. As a major manufacturer of commercial aircraft, Boeing can spread the high fixed costs of research, development, and production over a large number of units. For instance, bulk purchasing of materials like titanium and aluminum for airframes allows the company to secure lower prices per unit. Additionally, due to its size, Boeing can negotiate more favorable financing arrangements compared to smaller manufacturers, allowing for greater flexibility in capital investment.