Economies of Scale
As a business produces more, the cost per unit falls — being bigger gives you cost advantages.
Formula
Average Unit Cost = Total Costs ÷ Output
Real World
Tesco negotiates lower prices per unit from suppliers by ordering millions of identical products, passing some savings to customers while improving margins — an internal economy of scale.
Exam Focus
Always distinguish internal from external economies; confusing them is a common mark-losing error in 'explain' questions.
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