The Economy of Scale Assignment

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The Economy of scale is achieved by efficiently managing operations leading to an increase in production which in turn leads to reduced unit cost. There is a reduction in the production cost of units that add to the total units produced. In other words, as the production volume increases, there is a reduction in the cost of production of each unit produced.

When output increases, it results in a cost advantage as the cost is reduced and that is an economy of scale. The volume produced and fixed costs per unit are inversely related. What this means is, with an increase in production, the cost per unit would be lower as there would be a greater quantity of products that the costs would be shared with.

Variable costs per unit could be reduced as well for the same reasons that reduce fixed costs. Hence, efficient functioning and synergy would ensure that variable costs per unit are indeed reduced and economies of scale are achieved. The classifications of economies of scale are internal and external. Internal economies of scale arise from the company while external economies of scale arise from outside of the company; the size of the industry for example.

A big corporate may have to encounter economy of scale. Beyond the obvious benefits of economies of scale in areas of production and purchasing, finance is an area where economies of scale create an impact as well. Nonetheless, in terms of achieving economies of scale, the growth of a big corporation is limited.

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