Question

how does the concept of economies of scale impact the kind of costing decisions operations managers have to make in production planning

Answer 1

In the presence of significant economies of scale, firms can increase output significantly without increasing cost in the same proportion due to scale advantages. Thus, economies of scale helps firms to grow and earn profit without much effort. The manager takes cost decisions which allocates very low budget to costs. However, if firms face diseconomies of scale, its profit decreases as the cost of production increases significantly with increase in output. Thus, firms can decide to optimise production decisions through limiting costs or production size.