Economies of scale
Economies of scale are the cost savings a business gets as it grows: the average cost of each unit falls as it produces more.
They come from spreading fixed costs over more units, bulk buying and specialisation. Past a point, firms can hit diseconomies of scale, where size adds coordination costs.
Related terms
- Diminishing returns: Diminishing returns means that adding more of one input, while others stay fixed, eventually adds less and less output.
- Monopoly: A monopoly is a market with a single seller and no close substitutes, which lets it set a higher price and sell less than a competitive market would, creating deadweight loss.
- Marginal cost: Marginal cost is the cost of producing one more unit.
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