Economics of Scale exist when the production cost of a single product decreaseswith the number of unit produced. Refer to the situation in which the cost of producingan additional unit of output (i.e., the
) of a product decreases as the volumeof output (i.e., the
of production) increases. It could also be defined as the situationin which an equal percentage increase in all inputs results in a greater percentageincrease in output. Generally speaking, economies of scale is about the benefits gained by the production of large volume of a product.In business, economies of scale are usually considered in relation to specific areasof the production process, which may be technical, managerial, marketing, finance, andrisk.In achieving economies of scale, many factors must be considered. Economies of Scale bring cost benefit to the producers and gives the following benefits:-
Because a large business can pass on lower costs to customers through lower prices.
Increase its share of a market.
This poses a threat to smaller businesses that can be “undercut” by thecompetition.Mitchell’s is one of the largest producers in Pakistan. It is ISO-9001 certifiedcompany. It has a number of products available in the market. It is deeply concentratingon various areas where it can maintain its production cost to the lower level with themore production, thus striving for obtaining the economies of scale. It is using some of its major areas like technical farms productions, human resource training, R&D andQuality Control, where with little effort it can bring phenomenal results.1