what is meant by economies of scale?
Answers
In Microeconomics or Industrial Economics,economies of scale refers to a phenomenon in which the firms,companies or business organisations are able to decrease the production cost/expense per unit of output with the increase in the scale of production or operation.
Explanation:
Economies of scale is basically a situation faced by any firm or business organisation which allows them to control or reduce the average cost of production as the firm or organisation expands its scale of operation or production.There are multiple ways,a firm can achieve economies of scale in business such as incorporation of a new technology in production that can improve the efficiency or productivity level of the factors/inputs of production,wholesale purchase of factors/inputs at a discounted price,controlling the capital or investment cost in business,effective work distribution or allocation among the factor/inputs and so forth.Hence,these are some of the strategic options which can enable any firm or company to control or reduce the average production cost and enhance the productive scale or capacity by increasing production level,building new factory,undertaking large scale business or operational projects and so on.