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 Economies of scale Economies of scale by Anmyd Jeanneth Guzman Gonzalez - Tuesday, 26 January 2016, 5:27 PM 1.  Economies of scale suggest that there are benefits from increasing levels of production when all the resources are variable (Clifford, 2015). As stated in the article India’s development depends on the status of its energy sector, therefore suggesting that a better production of energy resources is needed.  Taking into account economies of scale theory, the development of more solar plants will make it more cost effective. Major cost reductions will be achieved via mass production of concentrated solar power (CSP), this will allow increasing the efficiency of the systems which in turns leads to decreases in manufacturing cost.  (Goswami, 2011). An advantage of supporting the creation of solar energy is that this allows to create a more cost competitive market in comparison with fossil fuel generated electricity. Larger solar farms can produce significant levels of electricity and additionally can create new jobs to empower India’s rural economies while sustaining a positive economic growth rate. 2.    The challenges that a firm might face when increasing its total output (fixed cost) lay in the fact that short run fixed cost don’t change with the amount produced. However, variable cost increase as the output increase. This means that fixed cost remains constants at each level of output in the short run.  (Mc Guigan et al, p 286 2014). Considering the firm cost curves, the unit costs such as the average fixed cost will fall as output increases. This is due to the fact that the fixed cost are now divided by larger quantities.  The marginal cost curve (change in total costs of increasing output by one extra unit) moves down and up because as a company adds variable resources to fixed cost the additional output will eventually decrease in the short run. Additionally, the average variable cost curve will tend to go down as the marginal cost is lower than the average cost. This curve will cut the marginal cost at its lowest point of the marginal curve as an additional output will decrease the marginal cost.  The total cost curve will rise as there is always an extra cost in producing an additional output. In other words, the variable cost (long run cost) varies directly with output as the unit the production increases the total variable cost will rise. (Clifford, 2015).   Resources   Clifford J 201, ‘Economies of scale: Microeconomic’, online video, November 2015, viewed 24 January 2016, < https://www.youtube.com/watch?v=JdCgu1sOPDo> McGuigan, J, Moyer, C, Harris, F, 2014, ‘eBook - Managerial Economics: Applications, Strategies & Tactics 13th Ed. Goswami, B, 2011, ‘How Concentrated Solar Power Can Meet India’s Future Power Needs’ The leadership summit for sustainable business, triplepundit.com, viewed 4 January 2015 http://www.triplepundit.com/2011/08/solar-farming-potential-india/> These are the 2 main questions you need to incorporate Has the answer applied the correct economic theory to analysing and addressing the case study. questions? Why or why not? o Is there a better way to address the question using economic theory and/or other considerations? If so, briefly, what is it? This is the case study India`s long term solution for its energy needs India’s drive to ensure sustained development is largely dependent on the status of its infrastructure and the energy sector. Although the country has added significant power capacity after 2003, India still suffers from significant shortages of electricity .. Multiple challenges faced by the energy sector – such as overcoming the energy deficit and defining a low-carbon development path – needs to be addressed in order to meet the nation’s aspirations. ….Faced with these critical challenges, India is seeking to harness alternative energy sources [to coal] in order to secure its development objectives and provide 24x7 power supply to all citizens and stakeholders. It is in this context that the Government’s target of adding 175 GW of renewable energy capacity could be the fulcrum for India’s energy security. This step means India will skip creating fossil-based assets and would directly leapfrog into the renewables era. Thereby, consumers in India would not have to pay the cost of stranded fossil fuels-based power plants. Considering the above, measures suggested below could help India achieve its target of 175 GW by 2022: • India needs to focus on commissioning solar farms of 50 MWp (megawatt peak) and 200 MWp sizes. A solar farm of this size has economies of scale, while the energy generated from it would be consumed locally. Therefore, no additional distribution network is needed, which means the cost of transmission will be lower. Above all, the commissioning time for a mid-sized solar is anywhere between 6 and 12 months. Please let me know if you need anything needs to be 200 words excluding reference in total



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