Economies and Diseconomies of Scale

PRESENTED TO Mrs. MEGHNAA SHARMA presented by group no-5

Neha Srivastava Riddhi Barman Ripinku Mathur Om Shyam Sandeep Yadav Rahul Pandey

Economies of Scale

Internal Economies of Scale
Definition: 

When a firm increases its scale of production, the reduced cost which this firm gets as a result are called Internal Economies. These are the result of increased division of labor or the use of improved production methods. Technical Economies of Scale, Managerial Economies of Scale, Labor Economies of Scale, Marketing Economies of Scale, Financial Economies of Scale, Risk – Bearing Economies of Scale.

Factors responsible for Internal Economies:1. 2. 3. 4. 5. 6.

External Economies of Scale
Definition: They are those benefits which are shared by a no. of firms or industries

when the scale of production in any industry or group industries increases.  It is a common benefit for all the firms working n the expanding industry.

Factors responsible for External Economies:1. Physical Factors, 2. Economies of Concentration, 3. Economies of Information, 4. Economies of disintegration.

External Economies of Scale Contd..
Importance of External Economy: External effects and welfare economies.  Importance in economic development.

Diseconomies of Scale
Definition: They are the forces that cause large firms to produce goods and

services at increased per- unit costs.  They lead to rising long-run average costs.

Types of Diseconomies of Scale:1. Internal Diseconomies of Scale, 2. External Diseconomies of Scale.

Internal Diseconomies of Scale
Definition: They are those factors which raise the cost of production of a

firm as its scale of production is increased beyond a point.

Factors of Internal Diseconomies of Scale:1. Unwieldy Management, 2. Technical Difficulties.

External Diseconomies of Scale
Definition:

The forces which ultimately limit the expansion of an industry may be called External Diseconomies of Scale.

Use of External and Internal Diseconomies in the Classification of Industries
Industries could be classified into three types in order to determine their equilibrium: A decreasing

cost industry(increasing returns).  A constant cost industry.  An increasing cost industry(diminishing returns).

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