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Economies of scale is related to and can easily be confused with the theoretical economic notion of returns to scale. Where economies of scale refer to a firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function.
Economies of scale refers to the cost advantage arise from increasing amount of production. Mathematically, it is a situation in which the firm can double its output for less than doubling the cost, which brings cost advantages. Usually, economies of scale can be represented in connection with a cost-production elasticity, Ec. [3]
In other words, returns to scale analysis is a long-term theory because a company can only change the scale of production in the long run by changing factors of production, such as building new facilities, investing in new machinery, or improving technology.
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...
Economies of scope are "efficiencies formed by variety, not volume" (the latter concept is "economies of scale"). [1] In the field of economics , "economies" is synonymous with cost savings and "scope" is synonymous with broadening production/services through diversified products.
Benefits of horizontal integration to both the firm and society may include economies of scale and economies of scope. For the firm, horizontal integration may provide a strengthened presence in the reference market. [5] This means that with the merger, two firms would then be able to produce more revenue than one firm alone.
As with returns to scale, economies of scale may apply over a region. If a mill is operating below capacity then it will offer positive economies of scale, but as it approaches capacity the economies will become negative. Economies of scale for the firm are important in influencing an industry's tendency to concentrate in the direction of ...
In simple terms, the concept is ... due to economies of scale it can be possible for the profit-maximizing level of output of monopolistic companies to occur with a ...