What are Economies of Scale?
Economies of scale refer to the cost advantages that a business or organization can achieve by increasing the scale or size of its operations.
In other words, as a company produces more goods or services, its average cost of production tends to decrease. This is because fixed costs (such as rent, machinery, and salaries) can be spread out over a larger output, leading to lower per-unit costs.
There are various sources of economies of scale, such as purchasing power, specialization, and technology. These advantages can lead to increased competitiveness, higher profits, and potentially lower prices for consumers.
However, there are also limits to how much economies of scale can be achieved, as certain costs may increase as a result of larger scale, such as transportation or coordination costs.