Constant Returns to Scale

When an increase in inputs (think lemons, sugar, and labor) causes the same, proportional increase in output (think lemonade).

Got two more lemons, two more sugar cubes, and two more minutes? Two more lemonades, coming up.

In contrast, there’s also “decreasing returns to scale,” otherwise known as “scales of economy,” which is when you get big enough that you get disproportionately more output with more input. Which is why mega corporations can put mom n' pop shops out of business. Mega corporations are saving on costs thanks to decreasing returns to scale, while mom n' pop shops are dealing with constant returns to scale.

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Finance: What does it mean to "scale"?58 Views

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Finance allah shmoop What does it mean to scale Well

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here's a squid eyeball from space fifty miles away and

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here's a squid eyeball from our boat the pesca squid

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alia's from a mile away and here's a squid eyeball

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from the view of our iphone we just dropped in

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the water when the squids when right beneath the boat

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scaring the crap out of us literally at one scale

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we could barely see the ocean At another scale We

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saw way too much eye ball scale and business has

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the same kind of dramatic effect as operations come into

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play That is it's One thing to serve lemonade drinks

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to one hundred people a week It takes one stand

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a permit grocery store visits worth of supplies it's completely

00:49

Another thing Toe serve a million drinks a week for

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the latter You need infrastructure trucks storage and armies of

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servers to you know serve Yeah that's what they do

01:02

someone's gotta get lemonades to the people So when a

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company scales it means that they have gone from a

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modest few million dollars of sales to sales of maybe

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one hundred million and then a billion Some like that

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The skill set for the former is a vastly different

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set than for the ladder and some people are able

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to do both Howard schultz founder and ceo of starbucks

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We're looking at you well starbucks started off is just

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one store in seattle in like five minutes later there

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were a gazillion of them all over the world thinking

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of coffee in any language So yeah that's How a

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company scales from you little toe Big big Incidentally you'll

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want to stay off the scale if you consume venti

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caramel frappe with whip on a daily basis but on 00:01:44.897 --> [endTime] there so good

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