3.3.3 - Economies and diseconomies of scale

• Economies of scale are when an increase in output result in a decrease in average unit costs
• Internal economies of scale occurs when a firm becomes larger. Average costs of production fall as output increases
• Examples of internal economies of scale:

  • Risk-bearing
  • Financial
  • Managerial
  • Technological
  • Marketing
  • Purchasing
• External economies of scale occurs within an industry when it gets larger.
• Diseconomies of scale is a disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise
• Long run average cost curve: