Question

What is economies of scale

Answer 1

Economies of scale can be described as a reduction in a cost per unit as the industry or a firm go on increasing the amount of production.

For example, let's take a cake making firm. For making a single they will need a lot of different ingredients like eggs, flour, sugar etc. Now we are making just one cake so anything which is not used in those ingredients will be wasted. Increasing the cost of production and making the process inefficient.  

Now if the same firm has to make ten cakes then they can utilize all the products much better than before making it cheaper and efficient. This is called achieving economies of scale. Now in future, the firm can get a much bigger oven or better machinery to decrease the cost even further.

In economies of scale, the cost of the production decreases as the products produces increases.