In as the result of a firm

In business
economics, the short-run is defined as the period of time in which at least one
factor of production is fixed, and the long run is defined as the period of
time in which all factors of production are variable. The law of diminishing
returns is a short run concept which states that as extra units of a variable
factor are applied to a fixed factor, the output per unit of the variable
factor will eventually diminish. This is under the assumption with constant
technology and homogeneous factors. Constant technology means that the
technique of production remains unchanged during the production, and
homogeneous factors mean that each factor unit is assumed to be identical in
amount and quality.

In the diagram, TP
stands for the total product which is the maximum output that a given quantity
of labor can produce when working with a given quantity of capital units. AP
stands for the average product which is the average production of each unit of
labor. MP stands for the marginal product which is the additional output
generated by an additional of workers. Diminishing return set in when the
marginal product starts to decline. This happens because the fixed factor
becomes insufficient in respect of the quantity of the variable factor (labor).

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Economies of scale are, however, a long run
concept, which states that any fall in long run unit average cost that comes
about as the result of a firm increasing its scale of production. The internal
economies of scale are the advantages that arise as a result of the growth of a
firm. On the other hand, the external economies of scale are the advantages
firms can gain as a result of the industry. There are five types of internal
economies of scale, which are technical, commercial, financial, managerial, and
risk bearing. Technical economies of scale state that large firms can afford to
invest in capital machinery, which will increase their productivity, and large
firms can afford to employ specialized labor. Also, the larger a firm is, the
lower the average cost will be. Commercial economies of scale states that a large
firm can purchase its factor inputs at a lower price as a result of buying it
in bulk. Also, that a large firm may have advantages of keeping the price high
because of its market power. Financial economies of scale state that financial
markets usually rated larger firms as more creditworthy, so larger firms have
access to credit with a better rate of borrowing. On the other hand, smaller
firms will need to pay more interest on their loan. Managerial economies of
scale will increase productivity by employing specialists to supervise
production system.  Risk-bearing
economies of scale are the ability of large firms to spread the coasts of
uncertainty over a wider range of activities to reduce their cost. External economics
of scale is that a large firm will have more supply of skilled workers because
skilled workers will prefer to work at a big firm instead of a small firm.

Also, the larger firms usually will be more famous compared to the smaller ones
and have a better reputation. Furthermore, larger firms will have more money to
spend on their training facilities which will give them some better-trained
worker leads to better productivity. 

The
size of a firm can be measured by measuring their capital investment, value of
product, number of employees (labors), amount of output, product capacity,
etc.. Some firms grow large to take advantage of economies of scale, because
achieving economies of scale will lead to larger amount of consumer, which will
increase their brand loyalty. A firm that achieves economies of scale will make
a greater influence on the society. Also, it may increase their long-term
profitability because their sale will be more stable compared to the firms that
sale their product at a higher price. Also, selling at a lower price with higher
output can put their competitor out of business. On the other hand, some firms
grow larger for some other reason, such as maximizing their revenue. In the
process of maximising revenue, firms will get closer to achieving economies of
scale.   As
I mentioned before, one way to measure the size of a firm is to measure the
amount of capital invested by them; however, it is hard to obtain accurate data
due to the variation in the capital requirement of a different unit. Another
way to measure the size of a firm is to measure its products’ value, but due to
the fluctuating value of products, it won’t be accurate if the value people
compare is over some period of time (due to the different session of the
economic cycle). I had also mentioned that people could measure a firm size by
the number of employees that work in the firm. However, a firm might decide not
to increase their employees as the firm grow. Furthermore, the amount of output
a firm produce can also be used for measuring a firm size, but the output varied
for different products, so it might not be accurate.There are many kinds of objectives that a firm
might try to achieve. One of the objectives will be maximizing their profit,
which means to get the biggest gap between revenue and cost of each unit of the
product. This will help the firm earn the greatest amount of money. Another
objective might be maximizing a firm’s revenue. For maximizing revenue, a firm
can make a greater influence on the society. Also, the firm’s income will be
more stable.In conclusion, I think measuring a firm’s
production capacity is the best way to measure the firm’s size. Also,
maximizing revenue is a good objective that most firms might want to achieve
because when people are maximizing their revenue, they will also get closer to
achieving economies of scale.