Economies of Scale
Economies of scale refer to the cost advantages that a business can achieve by increasing its production. When a business increases its production, it can spread out its fixed costs over a larger number of goods. This can lead to lower average costs per unit, which can result in higher profits. Economies of scale can be achieved through increased specialization, improved technology, and better use of resources.
History of Economies of Scale
The concept of economies of scale was first introduced by Adam Smith in his 1776 book, The Wealth of Nations. Smith argued that when businesses increase their production, they can benefit from lower costs due to increased specialization and better use of resources. This idea was further developed by Alfred Marshall in his 1890 book, Principles of Economics. Marshall argued that businesses can achieve economies of scale by increasing their production and spreading out their fixed costs over a larger number of goods.
Table of Comparisons
| Production Level | Average Cost Per Unit |
|---|---|
| Low | High |
| Medium | Lower |
| High | Lowest |
Summary
Economies of scale refer to the cost advantages that a business can achieve by increasing its production. When a business increases its production, it can spread out its fixed costs over a larger number of goods. This can lead to lower average costs per unit, which can result in higher profits. More information about economies of scale can be found on websites such as Investopedia, The Balance, and Investing Answers.
See Also
- Cost Savings
- Diseconomies of Scale
- Economies of Scope
- Fixed Costs
- Marginal Cost
- Marginal Revenue
- Production Function
- Return on Investment
- Variable Costs
- Average Cost
