Economies of scale

• Economies of scale


  The increase of the scale of output leads to a decrease in average costs of production
• Diseconomies of scale

  The increase of the scale of output leads to an increase in average costs
• Internal economies of scale 


  The factors that affect the average costs as a result of the growth in production within the business
• Types of internal economies of scale

  • Financial (the larger the firm the lower are interest rates on loans)
  • Managerial (employing specialist managers increases efficiency and lowers AC)
  • Purchasing (bulk buying)
  • Techincal (increased output spreads the costs of the machinery over more units)
  • Risk bearing (the risk of failure decreases as the firm grows bigger)
  • Marketing (advertising)
• External economies of scale


  The factors that affect the average costs when there is an increase in the size of the industry of the firm
• Types of external economies of scale

  • Transport links (improved transportations makes it cheaper)