ECONOMIC OF SCALE
EXAMPLE: There is a bakery near my home which used to provide cakes
for Rs. 20. At first it only produced 50 packets a day. The demand started
increasing in coming days. Due to this increased demand there was an increase
in production by the bakery. Few days later the shop started producing 80
packets a day but the price came down to Rs 17. This is because of economics of scale.
Due to increase in production the average cost of producing cake decreased.
This enabled the shop to decrease the price from 20 to 17.
It means cost of producing one unit is less when many units
are produced at once.
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