How Do The Economies Of Scale Affect Break
How do the economies of scale affect break-even analysis? In the video on leverage, leverage is compared to a fulcrum in that you need just the right balance of leverage. That would seem to indicate that there is a point where the leverage is just right and that too little leverage may be just as harmful as too much leverage. Do you think this is true?
The book discusses the difference between efficiency and effectiveness. Which one do you think is the most important in business and why?
Answers:
Deborah Doucet,
According to Investopedia (2015), “an economy of scale is the phenomenon that occurs when a company's average cost decreases and output increases in the long-run”. It is the causes that lead to a decrease in average costs that are gained by growth of a business. Break-even point is where total revenue will equal the total cost. It is the amount of total revenue that the company needs to create to cover all its total cost. As an effect, the company which experiences economies of scale will have the chance of increasing break-even point because it needs to sell more output to cover all its fixed costs.
Leverage is a debt financing. It is used to finance firm’s assets to increase the possible return of an investment. Truly, too little leverage may be just as harmful as too much leverage. It is accompanied by a greater risk. If all the investment of the company had been leverage and turns sour, greater loss will happen than it would have been if the investment had not been leverage. However, deleveraging or too little leverage results in increased costs and at the same time, it tends to reduce the potential profit of the company. Leverage helps the company to gain more profit and increase the possible return and if used properly, it can help both investors and companies that seek a good return on their investment by using others’ money which makes growth possible.
Although they sound familiarly the same, effectiveness and efficiency were so different
The book discusses the difference between efficiency and effectiveness. Which one do you think is the most important in business and why?
Answers:
Deborah Doucet,
According to Investopedia (2015), “an economy of scale is the phenomenon that occurs when a company's average cost decreases and output increases in the long-run”. It is the causes that lead to a decrease in average costs that are gained by growth of a business. Break-even point is where total revenue will equal the total cost. It is the amount of total revenue that the company needs to create to cover all its total cost. As an effect, the company which experiences economies of scale will have the chance of increasing break-even point because it needs to sell more output to cover all its fixed costs.
Leverage is a debt financing. It is used to finance firm’s assets to increase the possible return of an investment. Truly, too little leverage may be just as harmful as too much leverage. It is accompanied by a greater risk. If all the investment of the company had been leverage and turns sour, greater loss will happen than it would have been if the investment had not been leverage. However, deleveraging or too little leverage results in increased costs and at the same time, it tends to reduce the potential profit of the company. Leverage helps the company to gain more profit and increase the possible return and if used properly, it can help both investors and companies that seek a good return on their investment by using others’ money which makes growth possible.
Although they sound familiarly the same, effectiveness and efficiency were so different