Question

NASCAR team values have increased dramatically in the past two years. However, the days of small one or two car teams may be ending soon because the values of many small teams have fallen. The trend has driven some industry consolidation as smaller teams have merged in order to achieve some economies of scale.

The top two teams operate a total of nine cars in NASCAR and stand better odds of cashing in with virtually the same investment in operations. For example, both a one-car team and a five-car team have to operate a mechanic shop, and the five-car shop has a much better chance of victory.

Team valuations move with victories, and the top team, Hendrick Motorsports, has a value of $335 million. This amount is up more than 24 percent over last year while Petty Enterprises, a two-car team, lost 9 percent in value over the previous year. The Petty team “hasn’t won a Cup Series in nearly a decade.”

Analyze the relevance of economies and/or diseconomies of scale for the above article.

Answer 1

It can be mentioned that Economies of scale is something that is very relevant in the particular scenario and this is because of the fact that the higher higher team has a greater chance to win even all the given scenario is same. It has to be noted down that economies of scale increases their average probability to win if the number of car team is higher that is the reason why you can understand why the probability of 5 car team to win is high than one car team. Because two car team has lost 9% over previous year, it would be better if they can opt for a higher team so that the chances of winning goes high.