In: Business and Management

Submitted By Bettymay79
Words 981
Pages 4
When more units of a good or service can be produced on a larger scale with less input costs, then economies of scale are achieved. Economic growth is achieved when economies of scale is realized, this then implies that as a company grows and production units increase, the company will have a better chance to decrease its costs. There economies of scale are the cost advantages that a company obtains due to expansion, which leads to unit cost reduction as the scale of operations increase.
There are two sources of economies of scale: internal and external economies. Internal economies are specific to a company while external economies of scale are beneficial to all the entire industry.
Internal economies of scale include the following:
1. Labour economies- Increased of labour is a major source of labour economies. The extent of division of labour is preconditioned by the scale of output. As output increases and the labour force grow, a greater degree of specialization, with all its advantages, may become possible.
2. Technical Economies- Technical economies of scale occur when a business invests in new technology and is able to increase production. As a result, production costs per unit will fall. For example:

a) Economies of superior technique:
* Firms can use high technique and capital goods.
* Firms can install high quality machine and capital goods.
* Using these, will result in more efficiency, reducing the cost per unit of output.
b) Economies of increased dimension:
– Large pieces of equipment are relatively more economical than small ones Eg. A Double decker bus is more economical than a single decker.
c) Economies of linked process:
– Large firms enjoy advantage of linking of process by arranging…...

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