Everything you need to know about how entrepreneurs are influencing economies of scale: economic of scale development means a process of upward change whereby the real per capita income increases over time.

Entrepreneurs influence an essential role in economic development. Entrepreneurs act as a motivation in the process of economic growth and industrialization.

What Are Economies of Scale?

Division of labor and specialization are the two primary means of obtaining higher returns on production. Through these two techniques, employees will be able to focus on a specific task and, over time, improve the skills required to perform their functions. Then the tasks could be done better and faster. Therefore, through such efficiency, time and money can be saved while the production level is increased.

Just as there are economies of scale, so do discrepancies of scale. It occurs when output is less than the ratio of inputs. This means that there are inefficiencies within the firm or industry, resulting in rising average costs.

External Economies of Scale

Generally, economies of scale occur outside a firm, within an industry. Thus, when the scope of operation of an industry expands due to external development, external economies of scale may result. For example, building an improved transportation network can result in a subsequent reduction in costs for the company and its industry as a whole. Thus, when there are external economies of scale, all firms within the industry benefit.

Role of Entrepreneurs in Economic Scale Development

The entrepreneur plays an essential role in economic development. Entrepreneurs act as motivational in the process of economic growth and industrialization. Technological progress alone cannot lead to economic development unless entrepreneurs make economical use of technological breakthroughs.

  1. Capital Formation:

Entrepreneurs raise the idle savings of the public through the issuance of industrial securities. The investment of public protection in the industry leads to the productive use of resources of the nation. Thus, an entrepreneur is a creator of wealth.

  1. Improvement in Per Capita Income:

Entrepreneurs find opportunities and exploit them. As a result, they convert latent and passive resources into productive outcomes. As a result, they further increase the net national product and per capita income, which are essential parameters to measure economic growth.

  1. Generation of Employments

Entrepreneurs create jobs directly and indirectly. This is because self-employment as an entrepreneur provides the best way to lead a free and dignified life. Indirectly, they employ lakhs of people by setting up large and small-scale business units. Thus, entrepreneurship helps in reducing the problem of unemployment in the country.

  1. Regional Development:

Entrepreneurs in public and private sectors help bridge regional disparities in economic development. He set up industries in backward areas to take advantage of various concessions and subsidies given by the central and state governments.

  1. Living Standards:

Entrepreneurs set up industries that remove the shortage of essential commodities and introduce new products. Entrepreneurs help in increasing the standard of living of ordinary people by providing job opportunities to them. They offer goods at a lower cost and diversify consumption.

  1. Economic Independence:

Entrepreneurship is essential for national self-reliance. Industrialists help make indigenous substitutes for imported products and reduce dependence on foreign countries for resources, which is why entrepreneurs play a vital role in making our country economically independent.

  1. Backward and Forward Linkages:

An entrepreneur brings change which has a chain reaction. Therefore, there are many forward and backward linkages in the setting up of an enterprise. For example, establishing a steel plant generates many ancillary units and increases the demand for iron ore, coal, etc.

Pros & Cons

Pros

  • Entrepreneurs lift economic growth by introducing innovative products, technologies, and services.
  • Raised competition from entrepreneurs challenges existing firms to become more challenging.
  • Entrepreneurs offer new job opportunities in the short and long term.
  • Entrepreneurial influencing raises the productivity of economies of scale.
  • Entrepreneurs raised the structural change by replacing established, sclerotic firms.

Cons

  • Huge demand for self-employment is not necessarily a good indicator of entrepreneurial activity.
  • Entrepreneurship cannot thrive in an over-regulated economy.

Conclusion

Entrepreneurs often challenge existing firms, and while this may seem undesirable, unrestricted, established firms become complacent, content to take their profits without investing in research and development to improve their business. These stagnant firms are the first to suffer when imports arrive – wither rapidly, unable to respond to competition. Thus, challenging incumbents to perform better during good economic times is one of the benefits of entrepreneurship.