Economies of Scale

Anything which serves to minimize average cost of production in the long run as the scale of output  increases is referred  to as “ economies of scale “ It is measured in terms of  money .

The low cost of production is a result of what is called “economic of scale”.

Economics of Scale is a term that is used to describe the reduction in cost-per-unit as more units are produced. For example, if a company makes 500 widgets, they cost the company 10 cents a piece to produce. Another company makes 100,000 widgets, and can therefore purchase the materials necessary to make them for much cheaper than its competitors, so each widget only costs this company 5 cents a piece to produce.

He increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. 

When a firm expands in size by increasing the scale of its output, certain cost advantages accrue to the firm those are called “internal economies”.

Economics Of Scale

1)   Old style technology

2)   Standardization

3)   Cost advantage from volume

4)   Separable variable costs

5)   Task specialization

6)   Work as a social activity

7)   Expensive flexibility

8)   Large plant

Classification

Internal economies

Those economics which are opened to an individual firm when its size expands , they emerge with in the firm itself as its scale of production .

Forms of internal economies

1)   labour economies

2)   technical  economies

3)   managerial economies

4)   marketing economies

5)   financial economies

6)   risk minimizing economies

External economies

The result of the growth and expansion of any particular industry or a group of industry  as a whole . Thus, external economies are the function of the size of industry when its size expand

Thus, external economic can never be monopolized by any one firm in an industry.