Economies of scale occur when operational efficiencies are in place that make the business more productive, consequently driving down the cost of every unit. This means more can be produced if employees specialize in specific tasks. Learn more. Example of Economies of Scale. Definition: Economies of scale refers to the cost savings a company can earn by increasing the size of their operation or number of units produced. Economies of Scale Definition. When a firm expands its scale of production, the economies, which accrue to this firm, are known as internal economies. According to Cairncross, “Internal economies are those which are open to a single factory or a single firm independently of the action of other firms. In other words, the cost of production per unit decreases as a company produces more units. At its most basic level, economies of scale occur due to specialization and the division of labor. External diseconomies of scale are the result of outside factors beyond the control of a company increasing its total costs, as output in the rest of the industry increases. Economies of scale is an economic term that is also known as diminishing marginal cost. Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. In other words, the production process becomes more efficient as more goods are produced. Let's assume that it costs Company XYZ $1,000,000 to produce 1 million widgets per year (or $1.00 per widget). As a company gets bigger, it benefits from a number of efficiencies. Economies of Scale Definition. For example, it’s far cheaper and efficient to serve 1,000 customers at a restaurant than one. economies of scale meaning: the reduction of production costs that is a result of making and selling goods in large quantities…. The term implies that the cost per unit of production decreases as the firm enlarges its production. This idea is also referred to as diminishing marginal cost. Economies of scale occur when a business benefits from the size of its operation. Internal Economies. Economies of Scale Definition. Economy of scale definition is - a reduction in the cost of producing something (such as a car or a unit of electricity) brought about especially by increased size of production facilities —usually used in plural. Economies of scale are achieved when increasing the scale of production decreases long-term average costs. Economies of scale is a term that refers to the reduction of per-unit costs through an increase in production volume. It usually occurs when the firm expands its production and the average cost of output starts diminishing. Economies of scale describe the link between the size of a company and its product production cost. Learn more about the different kinds and what they can mean for you. This is the idea behind “warehouse stores” like Costco or Walmart. In everyday language: a larger factory can produce at a lower average cost than a smaller factory.