Introduction To Economies Of Scale
In simple words, economies of scale refers to decrease in the cost of production due to increase in the volume of production. When a firm increases its output quantity then per unit cost of product will be decreased and economies of scale occurs. Firms can enjoy the benefit of economies if production process is optimized and available resources are utilized properly.
Factors Causing Economies Of Scale
The main factors causing economies of scale can be highlighted as follows:
1. Specialization
Division of labor and specialization helps to improve labor efficiency. It leads to increase in production and decrease in the cost of production. So, specialization is the main cause of economies of scale.
4. Indivisibility Of Factors
2. Technological Factor
It is another notable factor that causes economies of scale. Improved production technology and modern machinery are used for large scale production with minimum cost. It also leads to economies of scale.
3. Quantity Discount
Manufacturers can get quantity discount while purchasing large volume of raw materials and other factors of production. It helps to reduce the cost of factors and causes economies of scale.
Some factors of production are continuously operated due to indivisibility. So, indivisibility of some production factors can also cause economies of scale.
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5. Efficient Employment Of Resources
Efficient and effective mobilization or employment of resources helps to increase output at minimum cost which brings economies of scale.
