Large Scale Laws
It is difficult to expand the size of a firm beyond a certain limit. The constrains are as under
(1) Financial Constrains: Expansion of production requires a plenty of capital and beyond certain limit capital tends to be scare which adversely affect production.
(2) Increase Cost of Factors: When production expands the demand for factors of production goes up. Consequently their prices also will up which raise the cost of production.
(3) Nature of occupation: In certain kinds of industries goods of artistic quality are produced. They cannot be produced on a large scale as for example carpet weaving, painting, etc.
(4) Fall in price of Commodities: Beyond a certain limit further production will not be beneficial because demand may be slack and over production will lead to fall in prices.
(5) Marketing Problems: Large scale production requires extensive market. If the product has a narrow market it will not be advisable to go for large scale production because it creates marketing problems.
(6) Limit to management: Beyond a certain limit a manager cannot effectively control and organize production.
Prof. Chapman has given the following limits to increase in scale of production:
(1) Complexities of internal organization.
(2) Emphasis of quality.
(3) Cost of machines.
(4) External factors influencing market conditions.
(5) Stationary demanded.
(6) Industries incapability to keep up with production techniques.
(7) Diseconomy of over-expansion.
LAWS OF PRODUCTION
The law of production describes the ways which are technically possible to increase the level of production.
We have already discussed that the output can be increased in following ways:
1. In short run the output can be increased by increasing the amount of the variable factor. The response of output to changes in the amount of a variable factor, when other factors of production remains constant, is referred to as Returns to factors or Law of variable proportions.
2. In long run the output can be increased by increasing all the factors i.e. the scale of production itself. The response of output changes in the size of scale of all the factors (in the same proportion) is termed as Returns to Scale.
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