Economies of scale
Economies of scale exist when a firm's long-run average cost (LRAC) decreases as output increases. These are cost advantages arising from increasing firm size, allowing the firm to produce each unit more cheaply at larger scales.
Real World
Tesco negotiates bulk discounts from suppliers like Unilever, paying far less per unit for Persil than a small corner shop — a purchasing economy of scale that lowers its LRAC.
Exam Focus
Name and explain at least two distinct types of economy of scale to reach the top mark band.
How well did you know this?