Economies of Scale

Diseconomies of scale

rise in the LRAC of production as output rises

Economies of scale

fall in LRAC of production as output rises

External economies of scale

falling average costs of production, caused by a growth in the size of industry within which the firm operates

Internal economies of scale

economies of scale which arise because of growth in scale of production within the firm

Minimum efficient scale of production (MES)

lowest level of output LRAC is minimised

Technical economies of scale

Lower units costs caused by larger firms being able to utilise more efficient methods of production

Managerial economies of scale

Lower unit costs caused by larger firms being able to hire and utilise the skills of specialised managers

Purchasing economies of scale

lower units costs experiencing by large firms, able to purchase required capital at reduced rates due to large volume its being purchased in

Financial economies of scale

lower unit costs experienced by large firms, able to have cheaper access to finance as lenders give more reliable large firms lower interest rates and large firms able to sell shares to obtain finance

Principle of increased dimensions

* Increasing dimensions of any structure leads to a proportionately larger increase in the capacity of this structure
* concept helps larger firms experience lower average costs
* able to afford larger structures which have more efficient capacities

Constant returns to scale

when firms increase inputs and receive an increase in output by same %