Economies of scale lead to decreased average total cost as production increases, impacting market dynamics.
Economies of scale refer to the long-run average cost curve where average costs decrease as production expands. When a firm enjoys economies of scale, its average total cost will decrease as production increases, leading to more efficient production processes.
For example, in industries with large fixed costs, such as manufacturing, as production scales up, the average cost per unit decreases due to spreading those fixed costs across more units produced.
Monopoly markets can also arise due to economies of scale, where firms with lower average costs can outcompete others, potentially leading to market dominance.
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