Scale Economies

Economies of scale refer to the cost advantages that a business gains as it increases production. Essentially, as the company produces more goods or services, the cost per unit typically decreases because fixed costs (like equipment or setup) are spread over more units, and operational efficiencies improve. This makes larger companies often more competitive price-wise. There are two main types: internal economies—cost savings within the company—and external Economies of scale—cost reductions resulting from industry growth or improvements in the supply chain. Overall, scale economies help businesses grow efficiently while reducing per-unit expenses.