Long Run Costs and Economies of Scale

   I am a scuba diving instructor and would love to operate my own diver center or chain of dive centers.  The goal of the dive center is to provide a complete package of sales and service to divers and other related customers.  This would include certification from the entry level to the instructor level, equipment sales and service, and organizing dive travel charters.  A dive center serves a relatively small but specialized market, therefore a relatively small number of operations typically serve a relatively large geographical area (especially in land locked, northern regions).  However, the potential market could be increased by expanding the scope of products offered to related water sports such as snorkeling, swimming, surfing, and kayaking.  This would allow continuous sales throughout the year (especially in more northern regions that experience seasonal trends).  However, the scope could be expanded much further to include all sports equipment, such as has been done by the Sport Chalet (http://www.sportchalet.com/category/scuba.do).
   I envision starting out with a single location, building a loyal client base and a reputation for excellent service. Once a steady cash flow has been established, I would begin strategically opening or purchasing additional dive centers in the same metropolitan area and expand into other major markets.  This would provide the advantage of an economy of scale in purchasing power with suppliers.  Like most retail businesses, when you purchase in larger volumes, quantity discounts are available, which allow you to reduce prices, while maintaining profit margins in order to be more competitive with other dive centers.  This would be unlikely to create a monopoly situation, but it could reduce the number of smaller competitors who are unable to match the lower retail prices.  Additional cost savings can be achieved through specialization of the workforce.  Sales staff will become more familiar with the features of equipment they are selling and service technicians will become more efficient at servicing equipment. 
   The Professional Association of Scuba Diving Instructors (PADI) is the largest dive training certification agency in the world and one of its primary mandates is to promote scuba diving as a fun and safe sport.  As a member of PADI, I would receive the benefit of an external economy of scale in the form of marketing support. Local marketing could involve radio ads, community newspaper ads, sponsoring and becoming involved in local environmental events (beach cleanups), and sponsoring local dive clubs.  Overall, scuba diving is a fairly social activity and providing a center for the social gathering of divers to exchange information and experiences is an important aspect of a dive center.
  

Fixed Costs	Short Run Costs	Long Run Costs
Rent	Advertising	Cost to build/purchase new stores
Utilities	Inventory	Replacement of rental equipment
Pool Maintenance	Contract Instructor pay	Lawyer and real estate agent commissions
Wages for key staff	Deposits for travel charters	Major equipment (compressors and pools)
Membership/Association Fees
Rental Equipment Maintenance

The Sport Chalet (http://www.sportchalet.com/category/scuba.do), with over 50 locations, has demonstrated the effectiveness of expanding their economy of scope to include all sporting goods as well as financial economy of scale by having a very large asset base from which they can leverage additional financing.  The Sport Chalet would also enjoy economies of scale in regard to purchasing power from their suppliers in all departments.  However, regardless of the benefit of the economies of scale experienced by the Sport Chalet, sports enthusiasts can be extremely loyal to businesses that provide superior service and expertise, therefore there is still the possibility of smaller businesses competing with them, so it's important to maintain excellent quality of service and instruction.