Economics of Scale and How It is Achieved

Economics of scale can be defined an expression that is used to describe the reduction in cost-per-unit as more units are produced. Hence in simple words it refers to cost advantages that a company gets when it begins to expand its operations. A company can accomplish economics of scale through following ways –

1. When a company buys inputs for the production in bulk it can take benefit of volume discounts which is offered by the suppliers of inputs and hence reduces the cost of inputs for the company which in turn results in lower cost of production for the company.

2. As the scale of production of a company increases, a company can employ the use of specialized labor and machinery resulting in greater efficiency. This is because employees would be better qualified for a specific job which he is doing for several months or years than a employee who is new to the company and hence specialization helps the company in completing the work early and hence efficiency increases.

3. As companies become bigger they tend to invest in research and development of both machinery as well as workers which in the long run helps the company in getting work done more efficiently and effectively and thereby achieving economics of scale.

Hence from the above one can see how company achieves economies of scale as it grows and expands its operations.

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