Answer :
ANSWER :
Economies of scale refer to the cost advantages that businesses enjoy when their production increases. In simpler terms, the bigger a business gets, the cheaper it becomes for them to produce each good. This happens because the business is able to spread its fixed costs over a larger number of units produced.
There are two main types of economies of scale:
• Internal economies of scale : These are cost advantages achieved by a single firm due to an increase in its own production. This can be through bulk buying (getting discounts for buying large quantities of raw materials), improved efficiency from using specialized machinery, or better utilization of labor.
• External economies of scale : These are cost advantages that an entire industry experiences due to growth within the industry itself. For instance, as an industry gets bigger, there might be a development of a more skilled workforce in that particular area, or improved infrastructure that benefits all the businesses in that industry.
Economies of scale play a major role in shaping industries. They can create barriers to entry for new businesses, since established companies may already be enjoying significant cost advantages. This can lead to market domination by a few large firms. However, economies of scale can also lead to lower prices for consumers and a wider variety of goods available.
