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Hi,
I want to learn and understand what Economics of scale really mean?
Kindly explain using a real life or practically example.
I know it is a pretty basic term. But I don’t want to remain confused about the basics.Thanks.
It is the idea that as businesses grow, their costs per unit produced falls. For example
(1) A small business might employ an accountant. One twice as large might still need only one accountant. Therefore the accountant’s salary is spread more thinly/efficiently.
(2) If a small business buys 1000 tonnes of material per year, probably a large business, buying 10,000 tonnes per year and having more bargaining power will be able to negotiate a reduced price per tonne.
(3) Working 24 hours per day instead of 8 hours per day will use plant and machinery more intensively/efficiently.
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