economies of scale



The reduction in long-run average and marginal costs arising from an increase in size of an operating unit (a factory or plant, for example). Economics of scale can be internal to an organization (cost reduction due to technological and management factors) or external (cost reduction due to the effect of technology in an industry). See also diseconomies of scale.

Use economies of scale in a sentence

  • Big companies are often more profitable than smaller ones because of economies of scale: suppliers may offer discounts for larger orders, shippers may decrease per trip costs to compete for a large volume of business, and necessary production management staff may increase internal manufacturing efficiency.

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  • As the company grew, it continued to drop its prices as economies of scale set in drove down manufacturing costs

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  • It's cheaper to buy things like food and office products in bulk because it's way cheaper for the manufactures to sell these products in bulk--it's simple Economies of Scale.

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Notable Quotes

  • One Acceptable Instance of Selling at a Loss
    "In business it often pays to sell to early adopters at a loss. The most obvious example is in technology products and services, where they are typically very expensive when they're first developed but then become less expensive as volume grows. But there are more subtle instances as well. For example, the early adopter discount happens every night at bars offering happy hour. By offering discounts on drinks, they build a crowd, which makes their venue more valuable that evening to subsequent patrons."
    - Tom Murcko

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