Quick Definition

Economies of scale refer to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Examples

• 1A large manufacturing company producing thousands of units can negotiate lower material costs than a smaller competitor.
• 2A major retailer like Walmart can distribute goods more cost-effectively across its vast network of stores compared to smaller retailers.
• 3A tech company can amortize the high cost of research and development over millions of software licenses.
• 4A large solar farm generates electricity at a lower cost per kilowatt-hour than a smaller installation due to higher efficiency and lower equipment and maintenance costs per unit.

Tags