Discuss the external economies and diseconomies, which computer firms may experience?

Expert Answers
readerofbooks eNotes educator| Certified Educator

This is a great question in this economy. There will many challenges to computer companies in the future. The idea behind diseconomy is that firms will have increase price per uint, which will make it harder to market and for people to afford. I think this is happening now. Stagflation is another term that might help.

Stagflation basically states that there will be inflation of prices, but pay wages will stay the same. This is the worst possible scenario and it seems that we may be going in that direction. If so, companies (computer companies included) will have to sell their goods at a higher prices due to the increases in raw materials.

In light of all of this, companies will have to pay more to produce. This means that less people will buy, because they cannot afford much.

kandi125 | Student

External Economies of Scale means that a computer firm may enjoy certain cost saving benefits by way of its own expansion and the expansion of its industry. These external economies are:

1. Collective advertising - companies jointly pay for advertisements and promotional events, which are cheaper for each computer firm participating in this venture.

2. Centralized education, training and research facilities - all the workers of firms in the computer industry can assess these facilities, thereby improving the supply of skilled labourers available to the industry. As well as ensuring workers are informed of the newest innovations and technologies and are fully able to work with them.

3. Market establishment - firms in a well-organized industry that are localized or have expanded into international markets tend to benefit from this increased market penetration and experience higher production levels to meet more product demand.

Not all expansion, however, is good for business. External Diseconomies of Scale, therefore, occur, resulting in average cost increases as the computer firm expands output.

1. Competition - when the computer industry experiences growth, new firms enter the market because the industry may operate in a perfect competition market structure. Thus, competition reduces each pre-existing firm’s market share and more money has to be spent on advertising to maintain its position in the market.

2. Pollution - the localization of computer firms in an area places strain on resources and causes traffic congestion with the traversing of workers which has a negative impact on firms and even greater impact on society.

3. Increased internal expense - the expansion of computer firms requires large capital to purchase new machinery and raw materials and hire of more skilled workers. These increased expenses will raise the average costs and prices of products for all firms in the computer industry.