Economies of scale

the cost advantages that enterprises obtain due to size, throughput, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output

In economics, economies of scale means that when more units of a product are made at the same time, the cost it takes to produce a single unit will go down. When making a product, there is a maximum capacity that can be made, at a given time. This capacity depends on the ways in which the product is made. If it is made by machines, these machines have a maximum number they can produce. Wanting to produce more than this number means new machines (or a new way to make these products) are needed. Adam Smith first had this idea of economy of scale, which he obtained through division of labour.[1]

The opposite of economies of scale are diseconomies of scale.

References change

  1. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, NJ: Pearson Prentice Hall. pp. 157. ISBN 978-0-13-063085-8.