Economies and Diseconomies of Scale

As firms grow, their average costs typically fall — at least up to a point. The reasons why average costs fall as output increases are called economies of scale; the reasons why they may eventually rise are called diseconomies of scale. Understanding these concepts is essential for analysing market structure, barriers to entry, and the optimal size of firms.

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Internal Economies of Scale

Internal economies of scale arise from the growth of the firm itself — they are within the firm's control and depend on the scale of its own operations.

Technical Economies