Economies of Scale
When the production increases, the cost of one unit decreases. Economies of scale means percentage change in average cost of production following at 1% increase in output. It is the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.
Example:-
To produce tap water, water companies had to invest in a huge network of water pipes stretching throughout the country. The fixed cost of this investment is very high. However, since they distribute water to over 25 million households, it brings the average cost down. However, would it be worth another water company building another network of water pipes to compete with the existing company? No, because if they only got a small share of the market, the average cost would be very high and they would go out of business.
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