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Economies of Scale and Diseconomies of Scale (Eng Rec.)
The occurrence of increasing returns is explained in terms of the economies of scale. Economies of scale refer to the situation in which increasing the scale of production reduces the unit cost of production or raises output per unit of the factor inputs. It may be pointed out that in the opinion of Prof. Koutsoyiannis, "Returns to scale are only one part of the economies of scale. Returns to scale are technical, while economies of scale include the technical as well as monetary economies."
Broadly, economies of scale are classified as:
(i) Internal Economies of Scale: These arise due to the change in the size of the firm and are available to that firm only.
(ii) External Economies of Scale: These arise due to the expansion of the industry, i.e. the number of firms.
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Internal Economies
When a firm increases its scale of production it enjoys several economies. These economies are called internal economies. Increasing Returns to scale are due to internal economies. These are those economies that are firm-specific. These are available to that particular firm in the industry that seeks to increase its level of output by way of increasing its scale of production. These are called internal because these are not shared by other firms in the industry which are not expanding their scale of production.
Definition
According to Cairncross, "Internal Economies are those which are open to a single factory, or a single firm independently of the action of other firms. They result from an increase in the scale of output of a firm and cannot be achieved unless output increases".
Koutsoyiannis has divided internal economies into two parts: (1) Real Economies, and (2) Pecuniary Economies.
Real Economies
Real economies are those which are associated with a reduction in the physical quantity of inputs, raw materials, various types of labor, and various types of capital. Real economies can be of six types:
Read More...
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By Sivananda PandaThe occurrence of increasing returns is explained in terms of the economies of scale. Economies of scale refer to the situation in which increasing the scale of production reduces the unit cost of production or raises output per unit of the factor inputs. It may be pointed out that in the opinion of Prof. Koutsoyiannis, "Returns to scale are only one part of the economies of scale. Returns to scale are technical, while economies of scale include the technical as well as monetary economies."
Broadly, economies of scale are classified as:
(i) Internal Economies of Scale: These arise due to the change in the size of the firm and are available to that firm only.
(ii) External Economies of Scale: These arise due to the expansion of the industry, i.e. the number of firms.
Visit Website: Commerceya
Subscribe on YouTube: Commerceya
Internal Economies
When a firm increases its scale of production it enjoys several economies. These economies are called internal economies. Increasing Returns to scale are due to internal economies. These are those economies that are firm-specific. These are available to that particular firm in the industry that seeks to increase its level of output by way of increasing its scale of production. These are called internal because these are not shared by other firms in the industry which are not expanding their scale of production.
Definition
According to Cairncross, "Internal Economies are those which are open to a single factory, or a single firm independently of the action of other firms. They result from an increase in the scale of output of a firm and cannot be achieved unless output increases".
Koutsoyiannis has divided internal economies into two parts: (1) Real Economies, and (2) Pecuniary Economies.
Real Economies
Real economies are those which are associated with a reduction in the physical quantity of inputs, raw materials, various types of labor, and various types of capital. Real economies can be of six types:
Read More...