ITM 601 Chapter Notes - Chapter 6: Customer Service, Maximum Capacity, Financial Analysis

• School: Ryerson University
• Department: Information Technology Management
• Course: ITM 601
• Professor: Amir Gandomi

Document Summary

Economies of scale: economies of scale: the concept that states that the average unit cost of a service or good can be reduced by increasing the output rate, why this works, spreading of fixed costs. When the average output rate, and therefore the facility"s utilization rate increases, the average unit cost drops because fixed costs are spread over more units. Doubling the size of the facility usually does not double construction costs: cutting costs of purchased materials. Higher volumes can reduce the costs of purchased materials and services. Higher output rate, process shifts towards a line process, with resources dedicated to individual products. 500 bed, economies of scale, best operating level (blue dot) 250 bed, higher cost of building and equipment: optimal size depends on the number of patients per week to be served, eg, hospital might have lower cost by choosing 250 bed because small community.