With the application of the next unit, average cost comes down to Rs. It tries to pinpoint increased production in relation to factors that contribute to production over a period of time. But notice several things: It was not predictable in advance (before the IBM deal) which system would come to dominate. Welcome to EconomicsDiscussion.net! Many high-tech products need to be compatible with a network of users. Product differentiation and brand names now mean that a few companies rather than many compete in a given market. Due to this advantage production is more than the proportionate increase in factors. It means demand of each factor can be increased whenever required. Mechanisms of increasing returns exist alongside those of diminishing returns in all industries. If knowledge-based companies are competing in winner-take-most markets, then managing becomes redefined as a series of quests for the next technological winnerâthe next cash cow. There are many such tables. But the company itself wound up with a small share of the spoils. At least one factor of production is divisible. The cabin crew can usefully be âempoweredâ and treated as human beings. 5.00 respectively. Added to these considerations, high tech is not a commodity industry. Adaptation is what drives increasing-returns businesses, not optimization. Java has competitors. These considerations appear daunting. But this ecology is now only 8% of the personal computer business. Understanding Economies of Scale . Diseconomies of scale occur when a business expands so much that the costs per unit increase. The question is tricky. Now the manager has to identify the sources of funds needed for producing the new product. No moves need be made in this strategy of premarket facedown. Now it can profit from spin-off software and applications. Prodigy was first into the on-line services market but was passive in building its subscriber base to take advantage of increasing returns. Thus, it shows that both marginal and average production increase as a result of the increase in the factors of production. It is an understanding based squarely upon the assumption of diminishing returns: products or companies that get ahead in a market eventually run into limitations, so that a predictable equilibrium of prices and market shares is reached. Novell recognized that NetWareâs success depended on attracting software applications to run on NetWareâwhich was a part of the ecology outside the companyâs control. In the corner is electronic banking. The Law of Increasing Returns was propounded in the seventeenth century by Antonia Seera. Pharmaceuticals exist within a network of physicians, testing labs, hospitals, and HMOs. Therefore, an increase of labour and capital generally gives returns which increases more than in proportion.” Marshall, “As the production of one factor in a combination of factors is increased up to a point, the marginal productivity of the factors will increase.” Benham. Laser printers are part of a grouping of products that include computers, publishing software, scanners, and photo-input devices. But typically, if these companies try to expand, they run into some limitation: in numbers of consumers who prefer their brand, in regional demand, in access to raw materials. Modern economies have therefore bifurcated into two interrelated worlds of business corresponding to the two types of returns. In a word, genteel. Thus, increase in price which is the result of the law of diminishing returns has adverse effect on economic welfare. At the beginning of this century, industrial economies were based largely on the bulk processing of resources. Unlike products of the processing world, such as soybeans or rolled steel, technological products exist within local groupings of products that support and enhance them. Our understanding of how markets and businesses operate was passed down to us more than a century ago by a handful of European economistsâAlfred Marshall in England and a few of his contemporaries on the continent. Generally, in the manufacturing industry, factors of production have elastic supply. While the law of diminishing return is harmful because when cost of production increases, price also increases. Or physicians tied in to an HMO. Success goes to those who have the vision to foresee, to imagine, what shapes these next games will take. In case of 2, 3, 4, 5 units, average cost declines to 8, 6.6, 5.7 and 5 respectively. First, where the local character of service remains important, it can preserve a large number of service companies but clustered round a dominant software providerâlike the large numbers of small, independent law firms tied in to the dominant computer-search network, Lexis-Nexis. But when the games themselves are not even fully defined, you cannot optimize. They are heavy on know-how and light on resources. It is important to understand the ecologies a companyâs products belong to. They were also repulsive to economists brought up on the order, predictability, and optimality of Marshallâs world. A locked-in product may obstruct technological advancement. You can position. You can be cunning. The foremost similarity between the law of diminishing returns and increasing returns is that both laws establish relationship between input and output. Causes of Increasing Returns: Law of increasing returns applies due to following reasons: 1. These questions have come to a head with the enormous amount of publicity generated by the U.S. Justice Departmentâs current antitrust case against Microsoft. The companyâs future survival depends upon them. There is much talk these days about a new management style that involves flat hierarchies, mission orientation, flexibility in strategy, market positioning, reinvention, restructuring, reengineering, repositioning, reorganization, and re-everything else. They depend on the existence of other products and other technologies. The final case, in financial services, illustrates the power of HCM to drive stock performance. Hierarchy dissipates and dissolves. There are plenty of independent sources of credit available to buyers – your role as a seller is to identify those sources and facilitate the introduction between your buyer and the lender. Hewlett-Packard, for example, designs knowledge-based devices in Palo Alto, California, and manufactures them in bulk in places like Corvallis, Oregon, or Greeley, Colorado. There are several forms of financing that utilize a firm’s inventory as collateral for a loan. Most high-tech companies have both knowledge-based operations and bulk-processing operations. The strategy has been challenged legally. The existence of oligopoly requires that a few firms are able to gain significant market power, preventing other, smaller competitors from entering the market. Often there are several such mechanismsâinterbraided, operating over different time frames, each needing to be understood, observed, and actively managed. Over at this table, a game is starting called multimedia. The more McDonaldâs restaurants or Motel 6 franchises are out there geographically, the better they are known. But in case of diminishing returns, it is not true because cost per unit increases with the increase in production. Increasing returns are the tendency for that which is ahead to get further ahead, for that which loses advantage to lose further advantage. Thus, we can say that the production of shoes obeys the Law of Increasing Returns. It believed that with its superior technology, it could hold its increasing-returns market to itself. Internal and external economies relate to production, marketing finance and organisation. This means making a careful choice of partners to build upon. Economies of scale external to a firm are the result of spatial proximity and are referred to as agglomeration economies of scale. The additional workers allow even greater opportunities for specialization, but because they are operating with a fixed amount of capital, each new worker adds less to total output. 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