When economies of scale exist, firms with large volumes of production will have lower costs
than those with smaller volumes of production. The realization of these economies of scale, however, is far from automatic. What actions can firms take to ensure that they realize whatever
economies of scale are created by their volume of production?
Economies of scale refer to the cost advantage that a company can obtain by increasing production and expanding its business. Simply because the fixed costs are distributed to many, and the variable costs are also reduced. To ensure that the economies of scale positively influence the amount of production, the manager should capture the economies of scale and learning effects. In other words, it is not always good to increase production. There are two critical factors that companies need to keep in mind:
1. whether the company will benefit from the additional product;
2. Will the company gain sustained advantage within the industry?
Economies of scale refers to the cost advantages that a firm or business could obtain due to
increasing production and expansion of the business. It is simply because the fixed cost gets
distributed on many and the variable cost also gets reduced. To ensure the economies of scale have a positive impact on the volume of production a firm produce, the manager need to capture both economies of scale and learning effects. In another word, it is not always good to increase the productions. There are two important factors a firm should concerns: (1) will company can profit from the extra product; (2) will the company gain sustained advantage within industry?
