Sample Essay
In the economies of scale the law of increasing dimensions also comes into play. This concept states that as volume of the business increases, the scope of the business increases in a much more relative percentage enabling the company to take advantage of this by minimizing costs on increased production and providing the company with benefits in terms of barriers for entry for other prospective new entrants in the market.
The efficiency factor is also inadvertently linked with the cost factor as well as efficiency is achieved when the costs are reduced and the company is operating at optimal costs. The efficient size of the firm is also determined by the cost strategies in place in the company. These strategies can pertain to the transactional costs which lead to institutional efficiency.
“In particular, following Coase’s insights and above all the debate which subsequently arose22, a firm may be seen as an institution alternative to the market in carrying out the function of resource allocation and that one of transactions governance. The central aspect of this approach consists in maintaining that all transactions involve costs and that, with view to minimizing such costs, different types of institutions of governance of transactions may emerge which will be translated into different optimal firm sizes.” (Tommaso & Dubbini, 2000)
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