Definition:
The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods
Read more: http://www.investopedia.com/terms/e/economiesofscale.asp#ixzz2Hr8w5t4h
Get it? No?
Well, in simpler words, economies of scale is doing things efficiently.
It basically the opposite of the economies of scale.
The graph pasted on the left is the graph that shows the economies and diseconomies of scale.
The graph shows:
- Economies of scale: As the average cost decreases, the output also decreases.
- Diseconomies of scale: As the average increases, the output increases.
There are two types of economies scale:
- Internal Economies
- Highlights the advantages that a company obtains by using modern technologies.
- External Economies
- Are advantages that a company obtains from external factors.
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