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Economies of scale imply that within some range one can increase the size of operation and the average total cost will go down.
What is Economies of scale?
- In microeconomics, economies of scale refer to the cost advantages that businesses experience as a result of their size of operation.
- These cost advantages are often quantified by the amount of output generated in a given amount of time. An expansion in scale is made possible by a drop in the cost per unit of output.
- There are two different kinds of economies of scale: internal and external.
- When compared to external economies of scale, which arise as a result of more significant developments outside the organization, internal economies of scale are firm-specific or created inside.
- Despite the fact that both lead to lowering marginal costs of production, the overall consequence is the same.
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