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Millennials are renting offices sharing costs to reduce their overhead expenditures and overall efficiency. What are the disadvantages and advantages of economies of scales? Give examples of your local establishments that use shared locations to decrease costs, i.e., Taco Bell and KFC. Include a minimum of one reference.

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Economies of scale are the cost advantages that businesses experience when they produce a large number of goods or services. These advantages can come from a variety of factors, including:

  • Increased efficiency: As businesses produce more goods or services, they can become more efficient in their operations. This can lead to lower costs per unit.
  • Bargaining power: Larger businesses often have more bargaining power with suppliers, which can lead to lower prices.
  • Specialization: Larger businesses can often specialize in certain tasks, which can lead to increased efficiency.

Full Answer Section

There are also some disadvantages to economies of scale. These include:

  • Risk of overproduction: If a business produces too much of a good or service, it may be difficult to sell all of the output. This can lead to financial losses.
  • Competition: Larger businesses may have more competition than smaller businesses. This can lead to lower prices and lower profits.
  • Rigidity: Larger businesses may be more rigid and less responsive to change. This can make it difficult for them to adapt to new market conditions.

Examples of local establishments that use shared locations to decrease costs:

  • Taco Bell and KFC: These two fast food chains often share locations. This allows them to save money on rent and other overhead costs.
  • Starbucks and Teavana: These two coffee shops often share locations. This allows them to save money on rent and other overhead costs.
  • CVS and Walgreens: These two drugstore chains often share locations. This allows them to save money on rent and other overhead costs.

Reference:

  • Economies of Scale: https://www.investopedia.com/terms/e/economiesofscale.asp

Overall, economies of scale can be a major advantage for businesses. However, there are also some potential disadvantages that businesses should be aware of.

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