Definition of Economies Of Scale

Economies of scale say that a company will lower its production cost as time passes because production becomes more efficient over time. The concept is all about some of the factors that are related to production cost and learning curve.

Some factors are internal such as efficient management of resources, training employees, reducing wastes, etc.


Example of Economies of Scale:

The standard time set by the production manager to stitch a shoe is 30 minutes. A worker who has worked for several hours on stitching shoes has built up a speed and now he is able to stitch a shoe in 24 minutes. This way the worker is now able to make 5 shoes in two hours (24 minutes x 5 = 120 minutes) instead of (30 minutes x 4 = 120 minutes). This way the labor cost has reduced over time.

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