Economies of scale in businesses are purchasing power
The absolute advantage theory is based on the variable abilities of organizations and countries to produce goods efficiently. The theory studies the efficiency of producing a single product in an organization. This analysis helps countries and business organizations avoid producing goods that will yield little or no demand, therefore, lead to losses. A country’s absolute advantage or disadvantage in a specific industry plays a significant role in the types of goods that it chooses to produce.
The theory of comparative advantage by Ricardo takes into consideration a holistic view with the perspective that a country or business organization owns sufficient resources to produce a variety of goods. In this approach, analysts identify the profits of two products and consider the opportunity cost of producing one of the products over the other. The country or businesses chooses the product that gives them higher returns in comparison with the other product.
Absolute advantage and comparative advantage are essential concepts in economics ad international trade. They influence the ways through which countries and business organizations allocate resources to the production of particular goods. In the absolute advantage theory, the main reason for producing a product is the efficiency of producing a good relative to the competing firm. In the comparative advantage, a country or business organization is In a position to produce many goods but choose one good over the other due to the differences in profits they get from the goods. The efficiency of the process enhances the gains in the absolute advantage theory while in the competitive advantage, the business benefits from the sale of a more profitable product.
Question two
Posner’s technology gap theory illustrates the advantage enjoyed by the country that introduces new gods to another country/market. According to the theory, the country that introduces the new goods will enjoy the comparative advantage and a state of temporary monopoly for the time that the other countries will be yet to imitate a similar market. The technology gap theory contradicts other theories that assume a fixed market and address technological changes in the economy. The theory indicates that the economy is influenced by politics, science, cultures, markets, and also by uncertainty. Therefore, the theory contradicts the neoclassical economics that indicates the economic outcomes are dependent on the natural endowment scarcity only.
In international economics, the theory assumes that the two countries have relatively similar factor endowments, demand conditions, and also factor price rations before the trade. The major difference between the countries is the technique used in the production. The technology gap in the theory exists between the time the new goods are imported from external markets, and when the domestic producers create the substitutes.
The technology gap determines the nation’s competence in the international market and also influences the technology policies and demand conditions. The technology gap stirs up government inputs in innovations. Technologically advanced countries export new technology globally, and the other countries acquire similar technology with time. The first company lacks a comparative advantage and needs to keep on developing and introducing new technology to the market to form a new technology gap. The sequence of the technology gap maintains international trade amongst the countries.
Question three
Economies of scale are a term used to refer to the factors that reduce production costs while increasing the output volumes in a company. The firm generates the internal economics of scale while the external economies of scale are based on changes/ factors outside the organization. They both reduce the marginal cost of production and increase the output volumes. Economies of scale offer a cost-saving incentive and also a competitive advantage that most large business organizations have over small scale organizations.
The robotics industry thrives inefficiency, high capability, and the ability to handle advanced tasks. Companies and businesses embrace robotics in their manufacturing segments due to the efficiency they bring in the production process. The effectiveness of the robotics results from the advanced technology applied in the production process. The technology advances in the production of quality robotics lead to the economies of scale in the segment. For instance, the addition of vision technology and the combination of the internet of things increases efficiency in the performance of robotics and the competitive advantage in organizations that applied the technique in the production process.
Major sources of economies of scale in businesses are purchasing power, managerial, and financial capabilities of the business. Governments can increase firms purchasing power through subsidies that boost business segments. Another way that the government can positively impact the competitive advantage of the local industries is through monetary policies that offer the businesses greater financial instruments.