economics of scale
Economies of scale refer to the cost advantages that businesses experience as they increase production. When a company produces more goods, the cost per unit typically decreases because fixed costs (like rent and salaries) are spread over more items, and operational efficiencies improve. For example, a factory making 10,000 toys may spend less on materials and labor per toy than one making 1,000. This allows larger firms to offer lower prices or increase profits, helping them compete more effectively in the market.
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Economies of scale refers to the cost advantages that companies experience as they increase their production. Essentially, as a business makes more goods, the cost per unit typically decreases. This happens because fixed costs, like rent and salaries, are spread over a larger number of products. Additionally, larger production volumes can lead to bulk purchasing discounts for materials and improved operational efficiency. Consequently, businesses that produce at a larger scale can often offer lower prices, which can enhance their competitiveness in the market. This concept is crucial for understanding how companies grow and succeed.