Meaning of Economies of Scale

Economies of scale refer to cost advantages for companies operating on a large scale. Fixed costs remain the same while production increases, reducing fixed cost per unit. Variable costs can also decrease with economies of scale. These advantages are often seen in global industries with high fixed costs. There are internal and external sources of economies of scale:

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Internal economies

This means the economies of scale are achieved by the businesses after making changes in their internal business environment, such as a change in technology, production volume, marketing economies, etc.

External economies

This means gains in the whole industry. In this, all the businesses operating in the same industry will have higher revenues and profits due to the growth of that particular domain.