What is economies of scale?

Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output. The advantage arises due to the inverse relationship between the per-unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the per-unit fixed cost.

What are diseconomies of scale?

Just like there are economies of scale, diseconomies of scale also exist. This occurs when production is less than in proportion to inputs. What this means is that there are inefficiencies within the firm or industry, resulting in rising average costs. Economist Alfred Marshall made a distinction between internal and external economies of scale.

How do economies of scale affect fixed costs?

The greater the quantity of output produced, the lower the per-unit fixed cost. Economies of scale also result in a fall in average variable costs (average non-fixed costs) with an increase in output. This is brought about by operational efficiencies and synergies as a result of an increase in the scale of production.

What are some examples of economies of scale in engineering?

Some of the economies of scale recognized in engineering have a physical basis, such as the square–cube law, by which the surface of a vessel increases by the square of the dimensions while the volume increases by the cube. This law has a direct effect on the capital cost of such things as buildings, factories, pipelines, ships and airplanes. [b]