Evangel's IB Economics Blog

The long run is the period of time in which all factors of production are variable. Economies of scale are any fall in long-run unit costs that come about as a result of a firm increasing its scale of output. Diseconomies of scale are any increase in long-run average costs that come about as a result of a firm increasing its scale of production.

Scale of the Freedom of the Seas (Picture by BBC News)

According to the article “Biggest cruise ship begins work” from BBC News, the Freedom of the Seas has surpassed the largeness of Queen Mary 2 in terms of volume. With more than 1,800 rooms for maximum of 4,375 passengers, Freedom of the Seas made its first voyage in early May of 2006. As it offers “big, active, city-vacation feel” to the passengers, many people are willing to pay between $1,500 and $3,200 for a ticket.

Apparently, by increasing its scale, the Freedom of the Seas attracts more costumers than any other cruise ships. It is clear that the Freedom of the Seas is enjoying the economies of scale as shown in Figure 1. Sooner or later, they will reach the state of constant return to scale then state of  diseconomies of scale.

(Figure 1) Economies of Scale