ECONOMY OF SCALE IN TRANSPORTATION

The article deals with the characteristic features and effects of economies of scale in transportation. First of all, a dual division of all the costs is necessary to clarify the working mechanism of economies of scale in such a branch of economic activity: 1) costs determined by distance and costs independent from it. These consist of fixed costs and such variable costs that depend on the "object" of transport, which in other words means on the volume of cargo or number of passengers. On the other hand, 2) there are costs dependent on the transportation object and costs independent from it, which consist of fixed cost and variable costs independent from the volume of cargo or number of passengers, that is--in other words--variable costs dependent on distance. The paper explores extensively the degression mechanism of a transport unit cost, illustrates the distance degression course and shows several types of transport object degression especially in maritime transport, performing at the same time and useful analysis of what the author calls the break-even point of unit cost degression. The final part of the work, dedicated to effects of economies scale, demonstrates how the main beneficiary of their working is the transport enterprise, since the law's advantages are instrumental in improving its financial results. As matter of fact, in average conditions, total costs rise at a slower rate than incomes, thus enhancing the firm's profitability. Through distance degression the law of economies of scale widens the sales market, while the transport object degression of unit costs intensifies both the tendency towards the concentration of transport production and the activity of transport users. Finally, the law of economies of scale promotes closer cooperation among transport enterprises, especially the ones belonging to the same mode, not excluding their merger.

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  • Accession Number: 00310194
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Apr 22 1980 12:00AM