Economies and Diseconomies of Scale
Economies and Diseconomies of Scale Economies of scale are defined as the benefits that a firm can achieve by expanding its scale of production in the long run. When the firm increase its production on a large scale, it helps to reduce the production cost and establish an optimum size of a firm. There are two types of economies: Internal Economies External Economies 1-Internal Economies: The internal economies arise within a firm itself when it increases the scale of production. There are the following types of internal economies of scale: Technical Economies- These economies arise because of technological improvements and the use of modern techniques of production. When a firm increases the scale of production, it becomes easy to take the mechanical advantage of the use of a large machine. Large machines are more productive and use proportionately less energy. Large scale reduces the cost of production by adopting the latest inventory management techniques. It is also possible ...