ECONOMIES OF SCALE

Economies of Scale:

                          Economies of Scale states that  increasing scale  in the outputs results to the decrease of the cost per unit.It is advantage for large businesses, buying in bulk.It is efficient method of reducing cost.Economies of Scale determines the size of the industry.

             Ex: Whole sale shops offers products with lower costs because they buy products in huge quantity or in bulk.Here as the quantity of products you buy increases the cost decreases.

There are two types of Economies of Scale :

Internal Economies of Scale:

                           If Internal factors like Machinery,Technology etc that are controlled and managed by management  affects in the reduction of costs, it is Internal Economies of Scale.

             

External Economies of Scale:

                         If External factors like government or  any external resources affects in reduction of costs is External Economies of Scale.It benefits the entire industry.