Economies of Scale

What are Economies of Scale?

Economies of Scale relate to the average cost. The more you produce, the more you are able to spread you costs. Larger businesses with large output often have lower average costs.

Internal economies of scale relate to the things inside the firm. The larger the business, the more it can specialise and order in bulk. A larger workforce means that workers can specialise in specific tasks and become more productive. Therefore through internal economies of scale the business can offer the consumer lower prices.

External economies of scale relate to the fact that as an industry grows individual firms benefit. It follows that for the benefit of all in the industry, similar firms will often locate themselves in a close geographical area.

Return to Introductory Economics Questions and Answers here.

To learn more, access the right low cost introductory economics tutorial here

Skip to toolbar