Economies of Scale

• Economies of Scale


  Economies of scale refer to a situation where a firm or an industry can reduce its average cost per unit of production by producing a larger quantity.
• Internal Economies of Scale

  Internal economies of scale occur within a firm and include factors such as specialization of labor, improved management and technology, and lower costs through bulk purchases and outsourcing.
• External Economies of Scale

  External economies of scale occur outside a firm and include factors such as transportation and communication economies, improved infrastructure, urbanization and agglomeration economies, and cluster effects.
• Diseconomies of Scale


  Diseconomies of scale occur when a firm or an industry experiences an increase in its average cost per unit of production due to factors such as bureaucratic inefficiencies, overstaffing, and communication problems.
• Technical Economies of Scope

  A technical economy of scope occurs when a firm can use a single set of machinery or equipment to produce multiple products, reducing the need for multiple production lines or machines.
• Financial Economies of Scope

  A financial economy of scope occurs when a firm can share administrative costs, such as accounting, finance, and human resources, across multiple products or divisions.
• Purchasing Economies of Scope

  A purchasing economy of scope occurs when a firm can take advantage of bulk purchasing discounts or negotiate better prices with suppliers by ordering large quantities of raw materials or components.
• Managerial Economies of Scope

  A managerial economy of scope occurs when a firm can leverage its management expertise and experience across multiple products or divisions, reducing the need for separate management teams.
• Risk-Bearing Economies of Scope

  A risk-bearing economy of scope occurs when a firm can spread its risk across multiple products or divisions, reducing the impact of market fluctuations, supply chain disruptions, or other external factors on individual products or divisions.
• Marketing Economies of Scope

  A marketing economy of scope occurs when a firm can benefit from shared marketing efforts, such as advertising campaigns, brand recognition, and customer relationships, across multiple products or divisions.