Economies of Scale

In microeconomics, economies of scale are the cost advantages a business obtains from the scale of its operations, typically measured by the amount of output it can produce per unit of cost; a firm achieves economies of scale when expanding its production lowers its cost per unit. These advantages can come from technical, statistical, organizational or market-related factors, and they can arise at the level of a single production plant or across an entire enterprise, appearing whenever average costs fall as output rises. Some economies of scale rest on a physical or engineering basis, such as the capital cost of manufacturing plants or savings in transportation, and the basic idea traces back to Adam Smith's account of the gains from the division of labor as production grows. Economies of scale eventually run into limits: a producer can exhaust nearby supplies of raw materials or saturate a local market, forcing costlier long-distance shipment, and large manufacturers often find it costly to switch between product grades frequently, which is why smaller or older plants remain viable for specialty production. Economists distinguish economies of scale, which come from a larger overall scale of operation, from the separate gain of simply running a given plant more intensively. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/