Question

Parkinson's law is an example of a) economies of scale b) diseconomies of scale c) Adam Smith's pin factory d) the firm's search for its most profitable output

Short answer

Parkinson's law is an example of b) Diseconomies of scale, as both concepts deal with inefficiency in different ways. While Parkinson's Law focuses on time management and work completion, diseconomies of scale focus on the increased costs per unit of output when expanding production.

Step-by-step solution

Parkinson's Law asserts that work tends to expand to occupy the time allotted for it, often leading to inefficiency. In other words, if a task is given a longer-than-necessary deadline, the work will naturally spread out to fill that time. #Step 2: Compare Parkinson's Law with economies of scale#

Economies of scale describe how a company's cost per unit of output decreases as the company increases production. However, Parkinson's Law is about work expanding to fill the time, which does not directly relate to economies of scale. #Step 3: Compare Parkinson's Law with diseconomies of scale#

Diseconomies of scale occur when increasing production leads to higher costs per unit of output. While this may appear somewhat related to Parkinson's Law, as both concepts touch upon inefficiency, they are not the same. Diseconomies of scale focus on production costs, whereas Parkinson's Law focuses on time management and work completion. #Step 4: Compare Parkinson's Law with Adam Smith's pin factory#

Adam Smith's pin factory example demonstrates the efficiency gains arising from the division of labor. This concept is different from Parkinson's Law, which describes inefficiency caused by time allocation rather than by the organization of labor. #Step 5: Compare Parkinson's Law with the firm's search for its most profitable output#

The firm's search for the most profitable output is a process of finding the optimal production level where profits are maximized. This concept focuses on maximizing profits, while Parkinson's Law highlights the inefficiency caused by time management. #Step 6: Match Parkinson's Law with the correct option#

Upon comparing Parkinson's Law with each of the given options, we find that it best matches with diseconomies of scale (option b), as both concepts deal with inefficiency, albeit in different ways. Therefore, the correct answer is: b) Diseconomies of scale

Key concepts

Diseconomies of Scale

Diseconomies of scale happen when a business grows beyond its optimal size, causing the cost of production per unit to increase. It's the opposite of economies of scale. The reasons can vary, such as:

• Coordination difficulties: As businesses expand, managing operations becomes complex.
• Increased waste from longer production processes.
• Redundant tasks or workforce duplication.

Unlike economies of scale, where costs go down as production ramps up, diseconomies highlight inefficiencies. As companies grow, they may suffer from poor communication or decision-making.
Understanding this can help businesses find their sweet spot in production where they minimize waste and inefficiencies.

Parkinson's Law

Parkinson's Law is a humorous observation about how work expands to fill the time available for its completion. Originally noted by C. Northcote Parkinson in the mid-20th century, it reflects how people often take longer to complete a task if given more time.

• This law is not about production processes but about human behavior.
• It warns of time inefficiencies when deadlines are too generous.

Although it's unrelated to economies or diseconomies of scale directly, both can lead to inefficiencies. Recognizing this can help in better time management and resource allocation in projects.

Adam Smith's Pin Factory

Adam Smith's Pin Factory is a famous example used to demonstrate the benefits of the division of labor. In his seminal work, "The Wealth of Nations," Smith showed how dividing work into specialized tasks resulted in increased productivity:

• Each worker focuses on a specific task, becoming quicker and more skilled.
• This leads to a boost in production efficiency and overall output.

This concept differs from Parkinson’s Law as it highlights how proper organization can lead to efficiency, contrasting inefficiency resulting from poor time management.

Optimal Production Level

The optimal production level is the balance point where a company maximizes output and profitability without overextending resources.

• Finding this balance means understanding both economies and diseconomies of scale.
• Companies seek this level to ensure minimal waste and maximum efficiency.

By achieving this level, businesses can minimize costs per unit and optimize their resources, aligning realistically with market demand to ensure sustainable growth. This understanding supports strategic planning, helping firms avoid the inefficiencies outlined by Parkinson's and the pitfalls of diseconomies.