economy of scale

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Economies of Scale

“Economies of scale refer to the advantages which a firm derives and this is responsible for increasing returns to
scale”. Economies and Diseconomies of Scale Average Total CostATC in long runEconomies of scale 0Constant Returns to scaleDiseconomies of scale

Quantity of

Cars per Day ? Types of economies of scale:

1. Internal Economies.

2. External Economies.

? Internal economies:

“The term refers to those advantages which are enjoyed by an individual firm as an industry”.

Such benefits are not shared by all but only to that firm which grows in size.

For example. Hotel industry. As different individual restaurants grow in size e.g. expands the sale, it alone will njoy certain advantages, these benefits can be termed as internal economies. ? Internal economies enjoyed by an individual firm can be discussed under different categories as follows:

1.Technical Economies.

2. Managerial economies.

3. Marketing economies.

4. Financial economies.

5. Risk bearing economies. ?

External Economies

As a result of growth of a particular industry many benefits are shared by all the firms or sectors. There are certain advantages
which are enjoyed by all firms in industries or sectors, this term is called external economies. Fore example, a particular place becomes a favorite tourist attraction i.e. Khandala. The restaurants and hotels, auto drivers, and other people in that area can naturally get number
of advantages. ? The external economies emerges particularly from the localization of industry.

Various such economies can be discussed as follows:

1. Economies of concentration.i.e. provision of transport, labour, finance, power etc.2. Economies of Disintegration.

i.e. supply of the raw material by small industries which reduce the cost.3. Economies of information.

i.e. journals, IT information, marketing & research department etc. ? Causes of diminishing returns –…

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