Economies of scale are referred to as cost advantage which arises from increase in the level of output. It mainly refers to carrying out of production activities at a low level of cost involved. Such economies of scale arise mainly owing to the prevalence of inverse relation between fixed costs per unit and the quantity of goods produced. The economies of scale are also capable of reducing the amount of variable costs per unit owing to synergies and the efficiencies with respect to operations involved (Checherita-Westphal and Rother, 2016). Economies of scale are very important in case of markets practising Monopoly. This is backed by the fact that, the economies of scale can help the monopolists enhance its level of profit level by enhancing its level of production with a very low level of cost involved.
Some parts of the Australian Airline industry has been characterized by economies of scale. The economies of scale mainly occurs owing to decrease in the cost of production which is mainly average based. This decrease in the rate of average cost is backed by the fact that the Airline industry is a large provider of services. This implies the fact that the Industry in long run, gravitates to attain natural monopoly. The persistence of monopolization in the airline industry should be prevented by practicing some ongoing regulations in order to guarantee commercial viability of its services in the longterm.
AD/AS model directs to reflect macro economic trends of economy and it is quite undoubted that most of the countries tend to believe on the same factors in terms of growth and prosperity (McCombie & Thirlwall, 2016). Practically, a sustainable and growing economy is dependent on some basic factors like inflation, unemployment, trade balance and growth trends. As it has already been revealed that most of the theories and models depict advantages as well as disadvantages, in case of AD/AS it is the same. For a long term growth, a respective economy tends to make stress on physical resource or human capitals and in the model, the respective factors have got lesser importance.
Figure 1: Sources of i9nflationary pressure (Source: Panayotou, 2016, p.147)
As per provided data, French government may follow AD/AS model in some terms to maintain a sustainable economy. For example, it will be possible to marginalise unemployment while global rate is increasing towards 10%. Practically, if a respective country cannot control unemployment, there will be variable economic growth in future. On the other hand, in terms of increasing physical resource or human capital, it is important to maintain sufficient FDI to strengthen the existing giant business entities. Following the French industrial base will gain a better support of economy and distribution of human capital may gain a sustainable position (Panayotou, 2016).
It is not only sufficient to manage a booming economy or managing the platform for future prosperity, but at the same time, it is important to make some effort to avoid inflation. A booming economy is always followed by inflation and having the same, there is possibility that French government may face drawback. Therefore, it is supportive to maintain a marginal flow of distribution of capital and this will be diversion of the AD/AS model. As per provided data, French Government may have the reflection of the model as dimensional pressure of inflation may reach to potential growth of the country and in that concern, it will be better to follow a marginal production and distribution in terms of capital and product distribution.
Panayotou, T., 2016. Economic growth and the environment. The environment in anthropology, pp.140-148.
McCombie, J., & Thirlwall, A. P. (2016). Economic growth and the balance-of-payments constraint. Springer.
Checherita-Westphal, C. and Rother, P., 2012. The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), pp.1392-1405.
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