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Economies of scale

Economies of scale refer to the cost advantage that arises with increased output of a product. Essentially, as companies grow and the scale of their operations expands, they can usually produce goods or services more cheaply per unit. This reduction in cost is achieved through several factors, such as the ability to buy inputs in bulk at a lower price, more efficient use of equipment and technology, spreading fixed costs over a greater number of units, and sometimes even benefiting from more favorable financing rates or tax advantages.

Economies of scale can occur in various forms, including operational (arising from the production process), purchasing (through negotiating power in buying bulk materials), and financial (accessing capital at a cheaper rate). While economies of scale can provide a competitive advantage to large companies, they also have their limits. The benefits from increased size can plateau or even reverse at a certain point, which is known as diseconomies of scale, where the costs start to increase with further growth, often due to issues like management inefficiencies or logistical constraints.

For more in-depth information on Economies of Scale, you can visit the following web pages:

1. Investopedia – Provides a comprehensive overview of economies of scale, including types, examples, and graphical representations to illustrate the concept:


2. Corporate Finance Institute – Offers a detailed explanation with examples related to different industries and the implication of economies of scale in financial analysis and business operations:


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