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Economies of Scale

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Economies of Scale, Scope and the Learning Curve Economies of Scale, Economies of Scope and the Learning Curve In this paper I aim to thoroughly explain the differences between economies of scale, economies of scope and the learning curve. Although the first two are related, we will come to see that none are wholly dependent on another. Each of these are important in their own right as they enable firms to benefit in different ways. Furthermore I will describe the circumstances under which we are more likely to experience one of the aforementioned concepts instead of one of the others.
Economies of scale exist when average costs decline through increased production. The theory behind economies of scale is that as firms increase their output the marginal cost of the last unit produced is less than the average cost, thereby pulling down total average cost. Many economists depict average cost curves as being U-shaped: From the diagram above we can see economies of scale exist until a certain point. At this point, known as the minimum efficient scale (MES), the marginal cost of the last unit produced starts to increase above average costs. Consequently, the firm begins to experience diseconomies of scale.
Economies of scale are important because they allow firms at a certain stage to achieve a cost advantage over their competitors. As a result of this cost advantage available, scale economies are a key determinant of the market structure of an industry. If economies of scale can be easily obtainable, ceteris paribus, we would expect to see many firms competing against one another. On the other hand, if they can only be achieved when a firm is producing very large amount of output, we would expect the industry to be dominated by a small number of large firms, or a single firm (knows as a natural monopolist). This is the case because small firms would not

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