I’m in my economics class and half of what I’m learning makes no sense. Part of it is the way things are explained—I have ADD, so comprehension is difficult for me.
No matter how many time I read I just can’t understand it.
In: 4
I want to make a loaf of bread. To do this, I need to grow some wheat, grind it into flour, add yeast, and bake it.
**Economy of Scale** my bread making is established, but now I’m making a lot of bread. Instead of grinding the grains by hand, I look into a fancy windmill with a grinding wheel attached. This is much more expensive to build, but once it’s done I can grind nearly 10 times as much wheat without adding any more workers.
In short: scaling up means you can leverage processes and equipment that make it more efficient to produce, lowering the cost per loaf, increasing per loaf profit.
**Diseconomy of scale** my bread making is scaling up wonderfully, but if I want to expand and sell more bread, I need to figure out a way to get it away from my bakery and into more shops. I hire a crew of teamsters who put the bread into carts and carry it everywhere. I also start adding more preservatives – salt – to my bread to make it so that it can last longer in transport.
In short: when scaling up, new problems at scale emerge that increase the cost per loaf, reducing per loaf profit.
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