Economics of Scale (ePub)

The beginning of this economic concept, economies of the scale,
can be dated back to Adam Smith who was a Scottish pioneer
of political economy and an important key figure during the
Scottish Enlightenment Era who first mentioned this concept in
his book "Wealth of Nations" in 1776 and was based on the
idea of obtaining greater production return profits through the
use of division of labour.
The economies of the scale rely over the fixed cost that are
uniform and do not vary with any of the alterations in output
processes or variable costs which may undergo changes due to
change in the amount of output. Other sources of the
economies of scale are Production, Managerial, Technological,
Financial, and Marketing.
The economies of scale tend to have a significant effect on the
production costs of the material. The economies of scale reduce
the per unit fixed cost of the product and with increased
production the fixed cost of the product expands over the
entire output at a greater rate than before. The economies of
scale are also responsible for bringing down the per unit cost
value of the product. This occurs due to the expansion of
production scale which as a result improves the efficiency of
the production processes.
The economies of scale are cost-advantageous and the working
of business takes place through exploitation of expanding scale
of production. There are broadly two main types of economies
of scale- Internal and External economies of scale which are
further subdivided into various types.
In simple terms, diseconomies of scale can be understood as
the opposite condition of economies of scale. It is a condition
which arises when economies of scale fail to function within the
firm and when there is an increase in the value of costs per
unit. The basic fundamental concept of economies of scale was-
lesser the quantity of produce, the greater the per unit fixed
cost of the product. The diseconomy of scale generates in the
condition of the exact opposite case. One of the primary
reasons for the diseconomy to occur is the inability of the firm
to manage a larger number of workforce.