BE Maruti case study 2

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  1. What are economies of scale? Where do the economies of scale for Maruti come from? (10 Marks)

Economies of scale refers to the cost advantages that is enjoyed by a company due to its scale of operation. In other words the cost per unit decrease when the no of units produced increases.

We need to understand that a business needs to with an efficient size. Too much or too less of a production can both be fatal. According to economies of scale as the business grows the cost incurred/unit goes down. Economies of scale is majorly effected by the fixed costs. Lets take an example, assume Maruti setup a plant to manufacture cars in Gurugram, the company setup the plant with a maximum capacity of 3000 units per month but instead of producing 3000 unity, the company sets out an initial...

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