INFO

Large firms take advantage of economies of scale in many ways, such as buying their inputs at discounted prices. But bigger is not always better. One major problem that confronts large firms is becoming "top-heavy"—that is, having a labor force that requires a large number of managers whose only job is to manage. This lowers the overall productivity of the labor force and increases costs.

DISCUSSION QUESTIONS

Discussion Questions:

1) Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers.

2) Your friend owns a business and is looking to expand. Describe the risks and rewards of such a move using economies of scale and costs.