Economic Impact Of Scale On Scale Essay
• Economies of scale usually occur to a firm after it has increased its capital investment.
Reasons for firms to have economies of scale
• Specialization is the main drive of economic of scale.
• Specialization leads to mass production of goods and services by firms.
• By expanding the scale of production firms are able to efficiently use its resources.
• The firm expands production after expanding its production capacity by acquiring modern machinery and use better technology.
Types of economies of scale
• Economies of scale can either be internal or external.
Internal economies of scale
• Internal economies of scale occurs when the increase in the factors of production of a firm leads to more that proportionate increase of its out.
• This leads to a fall in average cost of production.
• These economies of scale arise due to the growth of the firm.
Technical economies of scale
• Big firms have the ability to buy modern machinery, equipment and to introduce better methods of production.
• Such firms can employ specialist and well trained employees.
• They are able to carry out research and development in manufacturing processes.
• They can have greater division of labour which results in in high output.
• Within a big organization processes that are related can be linked to each other.
Managerial economies of scale
• They are also called organizational economies of scale.