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Apple Inc.

Brief info - Apple Inc. is an American multinational technology company headquartered in Cupertino,
California that designs, develops, and sells consumer electronics, computer software, and online
services. The company's hardware products include the iPhone smartphone, the iPad tablet computer,
the Mac personal computer, the iPod portable media player, the Apple Watch smartwatch, and the
Apple TV digital media player. Apple's consumer software includes the macOS and iOS operating
systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and
productivity suites. Its online services include the iTunes Store, the iOS App Store and Mac App Store,
Apple Music, and iCloud.

Economies of scale :

1. Technical Economies

These are often called economies in the use of factors of production. As the scale of production
increases, the firm does not have to increase the use of the factors of production to the same
percentage or degree as the increase in production. Thus, there is a saving or benefit.

For example, output can be increased using the same amount of labour. This is possible through division
of labour, which leads to increased output. In the case of capital, machinery which before was being
underutilized can now be used to its full capacity with very little or no increase in cost.

Due to the fact that Apple produces so many devices they can maximize the amount of goods produced
to maximize their economies of scale and lower average cost per unit.

Furthermore due to the large amount of products being produced by Apple the research and
development undertaken by the company is essentially free, another example of technical economies of
scale.

2. Marketing Economies

A large firm can spread its advertising and marketing budget over a large output and it can purchase its
inputs in bulk at negotiated discounted prices if it has sufficient negotiation power in the market.

Apple’s size and the fact that most of Apples products e.g. iPhone, iPad share the same components the
company can buy parts such as processing chips and display screens at lower prices due to buying in
bulk benefiting from Marketing Economies of scale. Any company that wants to make a tablet computer
that matches the pad’s low starting price of $499 would have to endure higher production costs. Due to
this Apple has 70% of the tablet computer market.

Another example of Marketing Economies of Scale that Apple benefits from is the large amount of
advertising the company has; also due to the size of the firm advertising one product essentially
advertises all other products produced by apple meaning that the cost of advertising is much lower than
it would be for a smaller firm.

3. Financial Economies

A financial economy of scale results from the ability of large firms to borrow money on better terms
than smaller firms which makes the cost of financing investment lower. This may be because they are
seen as a better risk by the financial institution or perhaps because they have access to more efficient
ways of raising capital

Larger firms are usually rated by the financial markets to be more 'credit worthy' and have access to
credit facilities, with favorable rates of borrowing. In contrast, smaller firms often face higher rates of
interest on overdrafts and loans.

Apple can also benefit from financial economies of scale as new competition enters the market, Apple
can use their economies of scale to lower the prices of their products so that competition cannot match.

Diseconomies of scale

1. Management problems

Apple may suffer from could be the curse of the company getting to big. Apple worries that in the
absence of Steve Jobs they may no longer benefit from Managerial economies of scale and may
struggle to maintain the innovation and excellence that has propelled it to such a position.

Co-ordination problems also affect large firms with many departments and divisions, and may find it
much harder to co-ordinate its operations than a smaller firm. For example, a small manufacturer
can more easily co-ordinate the activities of its small number of staff than a large manufacturer
employing tens of thousands.

It is harder to ensure that all workers are working for the same overall goal as the business grows. It
is more difficult for managers to supervise their subordinates and check that everyone is working
together effectively, as the spans of control have widened. A manager may be forced to delegate
more tasks, which while often motivating for his subordinates, leaves the manager less in control.

As the business expands communicating between different departments and along the chain of
command becomes more difficult. There are more layers in the hierarchy that can distort a message
and wider spans of control for managers. This may result in workers having less clear instructions
from management about what they are supposed to do when.

In addition, there may be more written forms of communication (e.g. newsletters, notice boards, e-
mails) and less face-to-face meetings, which can result in less feedback and therefore less effective
communication.

2. Labor diseconomies
Workers can often feel more isolated and less appreciated in a larger business and so their
loyalty and motivation may diminish. It is harder for managers to stay in day-to-day contact with
workers and build up a good team environment and sense of belonging. This can lead to lower
employee motivation with damaging consequences for output and quality. The main result of
poor employee motivation is falling productivity levels and an increase in average labour costs
per unit.

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