Economies of scale is a term that is thrown out quite a bit in the business world. Management and executives talk about leveraging scale. Investors seek out scalable companies. Every first-year business school student is familiar with the term. What are economies of scale and why does it matter in business?
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Economies of scale are the advantages in cost that a business gets due to expansion in the scale of production in the long-run. The effect of this is reduced average cost in unit output as the scale increases. This is a long run concept that refers to a reduced unit cost of production as the size of the company or scale of production increases. The economies of scale are not limited to any firm provided wants to increase its scale of operation. The lower average costs lead to an improvement in production efficiency which can trickle down to consumers through lower prices.
Economies of Scale: Concept, Sources, Types, and Benefits
Economies of scale are the phenomenon of reduction in per unit costs when the output increases. The average costs per unit of output decrease as the volume of production increase. Due to the economies of scale, now the consumers get the products at lower prices because firms achieve lower costs per unit when the output increases.
Return to Economics Dissertation Ideas. Users browsing this forum: Google [Bot] and 0 guests. When more units of a good or a service can be produced on a larger scale, yet with on average less input costs, economies of scale ES are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized.