A young man has set up a lemonade stand on the corner of College Street and Air Park Boulevard.

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A young man has set up a lemonade stand on the corner of College Street and Air Park Boulevard. Temperatures in the area climb to 100 degrees during the summer. The intersection is near a major university and a large construction site.

Explain to this young entrepreneur may benefit from economies of scale. Also explain some dis-economies of scale.


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. First we define what economy of scale and diseconomy of scale.

Economies of scale (hereafter ES) are the cost advantages that a business obtains due to expansion (AKA mass production).

Diseconomy of scale (hereafter DS) is the forces that cause larger firms to produce goods and services at increased per-unit costs.

ES is fairly easy to understand, as most people understand mass production. There are always fixed costs incurred in any …

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