• In order for firms to benefit from economies of scale there must be enough demand for its products.
• Economies of scale usually occur to a firm after it has increased its capital investment.
Reasons for firms to have economies of scale
• Specialization is the main drive of economic of scale.
• Specialization leads to mass production of goods and services by firms.
• By expanding the scale of production firms are able to efficiently use its resources.
• The firm expands production after expanding its production capacity by acquiring modern machinery and use better technology.
Types of economies of scale
• Economies of scale can either be internal or external.
Internal economies of scale
• Internal economies of scale occurs when the increase …show more content…
• For example some firms may benefit from another company that has got experienced mechanics or electricians, who are willing to offer their assistance to these organizations in time of need
• In Zimbabwe forestry companies assist each other if there is an outbreak of fire. They work together to stop the spread of such fires.
Increased efficiency
• If a large organization can use modern equipment and machinery as well as better technical skills, leading to efficient use of resources, it benefits from lower costs.
• The society benefits from efficient use of the scarce resources.
Diseconomies of scale
• Diseconomies of scale arise in the long run when the average cost of production increases as the level of output of a firm rises.
• In other words diseconomies of scale refer to the rising of costs of production that results from the growth of the firm.
Communication problems
• In large organization the leaders do not have close contact with the rest of the employees.
• As a result there may be poor feedback to the employees of their work performance.
• Large organizations tend to use a lot of non-verbal communication such as memorandums, newsletters and
• Economies of scale usually occur to a firm after it has increased its capital investment.
Reasons for firms to have economies of scale
• Specialization is the main drive of economic of scale.
• Specialization leads to mass production of goods and services by firms.
• By expanding the scale of production firms are able to efficiently use its resources.
• The firm expands production after expanding its production capacity by acquiring modern machinery and use better technology.
Types of economies of scale
• Economies of scale can either be internal or external.
Internal economies of scale
• Internal economies of scale occurs when the increase …show more content…
• For example some firms may benefit from another company that has got experienced mechanics or electricians, who are willing to offer their assistance to these organizations in time of need
• In Zimbabwe forestry companies assist each other if there is an outbreak of fire. They work together to stop the spread of such fires.
Increased efficiency
• If a large organization can use modern equipment and machinery as well as better technical skills, leading to efficient use of resources, it benefits from lower costs.
• The society benefits from efficient use of the scarce resources.
Diseconomies of scale
• Diseconomies of scale arise in the long run when the average cost of production increases as the level of output of a firm rises.
• In other words diseconomies of scale refer to the rising of costs of production that results from the growth of the firm.
Communication problems
• In large organization the leaders do not have close contact with the rest of the employees.
• As a result there may be poor feedback to the employees of their work performance.
• Large organizations tend to use a lot of non-verbal communication such as memorandums, newsletters and