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Math Help - Economies of Scale

  1. #1
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    Economies of Scale

    I'm looking for a formula that can incorporate economies of scale and really don't know where to begin, so I came here.

    The specific situation that I am looking to use this formula for is to reflect the economies of scale in how much labor is needed as the physical square footage of a business grows. What type of formula would I use for that? Does anyone know of a good reference that I could use while developing this? Any direction that someone can point me in would be very helpful.


    Thanks.
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  2. #2
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    Re: Economies of Scale

    The definition of economies of scale i was taught is "falling average cost of production as output increases".

    Im not sure your going to get meaningful results by looking at how labor costs relate to land usage. For example Consider a hypothetical office company in which:
    (1) All staff are paid the same
    (2) All office space is used for desks

    You would observe that labor costs increased proportionately with office space, but that doesn't tell you anything about the cost of producing each unit of the company's output.
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  3. #3
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    Re: Economies of Scale

    Thank you for your quick reply.

    To clarify further, the cost factor in what I am using this for is not the wage rate but labor hours. A perfect example would be housekeeping for common areas (the lobby, hallways, public restrooms, etc...) at hotels. As hotels get bigger they have more common area square footage, which is mainly just carpeted areas with some possible decor. These common areas should see some economies of scale as the hotel gets bigger. I'm wondering if there is some sort of formula that I can reference in which I could plug in the standard time per X amount of square feet and add an economies of scale factor to find the total labor time needed as square footage grows.
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