economies of scale - costs, revenue + profit

Economies of scale

When a firm benefits from cost reduction as a result of efficiency of production. When a firm produces more quantity of same item for an increasingly cheaper cost. Upward curve

Diseconomies of scale

When a firm stops benefitting from cost reduction due to inefficiency in one or more aspects of production. Downward curve

Internal economies of scale

Economies of scale impact a single firm + are brought by the actions of that firm

External economies of scale

Economies of scale that impact a group of firms or an industry, but aren’t bought about by the actions of a firm / industry

Characteristics of internal economies of scale

• Efficiencies from large scale production

• Low, long run average costs (exclusive relationship with suppliers)

• Expansion of the firm

• Range of economies (expanding into new industries)

Characteristics of external economies of scale

• Benefit for all or most firms in the industry (demand for delivery)

• Agglomeration industries (companies benefiting on each other’s support + growth)

• Expansion of the industry

• Helps explain large city growth

What are the 6 different types of internal EoS

• Risk bearing

• Financial

• Managerial

• Technical

• Marketing

• Purchasing