Question

Most studies have shown that the initial stages of the pharmaceutical manufacturing process usually give rise to _________________ , while after the large fixed (sunk) costs are finally paid off, manufacturing of pharmaceutical products exhibits ________________________________.

Answer 1

The answer to the first unknown is "economies of scale" while in the second unknown is "diseconomies of scale". Based on the study, it has been shown that the initial stages of the pharmaceutical manufacturing process usually give rise to economies of scale, while after the large fixed "sunk" cost is finally paid off, the manufacturing of pharmaceutical product exhibits diseconomies of scale.

Answer 2

Manufacturing process usually give rise to $\fbox{diseconomies of scale}$, After the large fixed (sunk) costs are finally paid off, the manufacturing of pharmaceutical products exhibits$\fbox{ economies of scale}$.

Further Explanation:

Diseconomies Of Scale: It takes place when the cost of producing one unit increases with the increase in production.

Reason for the diseconomies of scale:

• Complex Communication channel

• Lack of coordination between the departments

• Managerial inefficiency

Economies Of Scale: Economies of scale arises when the cost of producing one unit decreases with the increase in production.

Reason for the economies of scale:

• Efficient Production

• Reduction in promotion cost

• Cheaper capital

• Reduction in logistics cost

Therefore, When the pharmaceutical company starts their production, the fixed cost is high which leads to diseconomies of scale, but as the level of production increases, it spread the fixed cost which leads to economies of scale.

Learn more:

1. Demand and type of goods

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2. Demand and supply of goods

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3.  Elasticity of demand

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Answer details:

Grade: High School

Subject: Economics

Chapter: Economies Of Scale

Keywords: Economies of scale, diseconomies of scale, the pharmaceutical manufacturing process, the large fixed (sunk) costs, pharmaceutical products