Economies of scale

Rearing one chicken is relatively more expensive than rearing 100 chicken. You will need to hire someone to raise the one chicken. You need to build a chicken house for the one chicken and buy drinkers and feeders as well. All these costs have to be recovered from one chicken only.

When you raise 100 chicken you spread these costs and the unit cost of production goes down. Some costs are fixed and have to be incurred irrespective of the size of the venture. So as you increase the output the production costs per unit reduce because they are being spread among many units.

Raising 1,000 chicken is better. So is rearing 10,000 chicken. Of course the overall operational costs are much larger but you will make better margins per chicken. This is because you can buy feeds and other inputs in bulk and get better discounts. Also the labour costs are spread among the many birds. One person who manages 100 birds can also manage 500 birds.

Someone who raises 1,000 chicken gets to learn faster than someone who rears only 100 birds. As the scale of an operation increases so does the proficiency with which an organization delivers the work.

Economies of scale should be pursued to a point where the firm earns sufficient margins for a given level of capital deployment to ensure competitiveness and profitability.

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