Economies of scale

 

Institution Definition

Economies of scale occur when firms achieve per unit cost savings by producing more of a good or service (i.e. when average costs decrease as output increases). Such effects arise when it is possible to spread fixed costs over a higher output. Examples of scale economies are the bigger lorry that transports more while still requiring only one driver or the larger plant that does not require more spare parts to be kept in stock than the smaller plant.

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