Economies of Scale
As a business produces more, the cost per unit falls — being bigger gives you cost advantages.
Formula
Average Cost per Unit = Total Costs / Units Produced
Real World
IKEA sources flat-pack furniture in massive volumes from global suppliers, spreading fixed production costs across millions of units and keeping retail prices lower than rivals.
Exam Focus
Always specify whether the economy of scale is internal or external, and name the type (e.g. purchasing, technical) for full marks.
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