Economies of scale
In economics, economies of scale means that when more units of a product are made at the same time, the cost it takes to produce a single unit will go down. When making a product, there is a maximum capacity that can be made, at a given time. This capacity depends on the ways in which the product is made. If it is made by machines, these machines have a maximum number they can produce. Wanting to produce more than this number means new machines (or a new way to make these products) are needed. Adam Smith first had this idea of economy of scale, which he obtained through division of labour.[1]
The opposite of economies of scale are diseconomies of scale.
Economies Of Scale Media
As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost.
Graph Depicting External Economies of Scale
References
- ↑ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, NJ: Pearson Prentice Hall. pp. 157. ISBN 978-0-13-063085-8.
