Encyclopedia > Economies of scale

  Article Content

Economies of scale

In economics, the term economies of scale refers to a situation where the cost of producing one unit of a good or service decreases as the volume of production increases. The converse situation in which the cost of producing a good or service increases as the volume of production increases is known diseconomies of scale[?]. Economies of scale tend to occur in industries with high capital costs in which those costs can be distributed across a large number of units of production.

The exploitation of economies of scale helps explain why companies grow large in some industries, why marketplaces with many participants are sometimes more efficient, and how a natural monopoly can often occur. It is also a justification for free trade policies, under the idea that a large unified market presents more opportunities for economies of scale.

Network externalities resemble economies of scale, but they are not considered such because they are effects of the number of users of a good or service, not of efficiency within a business. On the other hand, Economies of scale external to the firm are not considered examples of Network externalities despite the fact that they arise from similar non-market interactions with external resources. There is something arbitrary about this, to the extent that either approach may be used if corresponding definitions are used. The most important thing is be consistent about it, which means respecting the established convention.

see also : microeconomics, production, costs, and pricing, economies of scope, economies of agglomeration

List of Marketing TopicsList of Management Topics
List of Economics TopicsList of Accounting Topics
List of Finance TopicsList of Economists

All Wikipedia text is available under the terms of the GNU Free Documentation License

  Search Encyclopedia

Search over one million articles, find something about almost anything!
  Featured Article

... - 4th century Decades: 190s 200s 210s 220s 230s - 240s - 250s 260s 270s 280s 290s Years: 237 238 239 240 241 - 242 - 243 244 245 246 247 Events Patriarch Titus[?] ...

This page was created in 31.6 ms