Analysing Economies of Scale

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Economies of scale = increases in the scale of an operation.

RISE IN DEMAND = CUT AVERAGE COSTS as a result of improved capacity utilisation.
eg. overheads of running the factory 10 000
divided over 2 000 products = HIGH COST/UNIT
BUT divided over 10 BILLION products = VERY VERY LOW COST/UNIT
 Which in turn will positively impact the profit margins etc BUZZ.

BUT
Diseconomies of scale are INEVITABLE. eg. reduced motivation in staff, absenteeism, poor levels of output per worker etc etc etc
Which is why…

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