Deelited Inc. is a company that manufactures soft toys for children. The company operates on a very large scale, and this has enabled it to price its toys at competitive rates while still retaining good product quality. Since it is extremely difficult for a new entrant to sell toys at such low prices, few competitors have emerged for Deelited in the past five years. In this case, the low threat that Deelited Inc. faces from new entrants can be attributed to:

Supply-side economies of scale

Explanation:

This term refers to the advantages that can be obtained from long-term production. The idea is simple and has to do with costs.

We will say that a company obtains economies of scale when, from a certain volume of production, the unit costs are reduced since they do not increase in the same proportion.

Let's say, for example, a bread manufacturing and selling company. Its daily production entails a series of costs (salaries, taxes, rents, raw material, service) that can be divided between fixed costs and variable costs.

The company will sell the fixed costs one or infinite bars, but once they are covered and their share of the variables (the dead center) the company will start to have benefits.

From that moment on, each unit sold should only cover its fixed costs and although a volume makes new costs (more supplies or more workers) necessary, they always grow less than the benefits. This is an economy of scale.

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