How can a company benefit from economies of scale?

Economies of scale is the concept that as a company increases its output, cost per unit will decrease as fixed costs are spread over a larger number of units. This is known as internal economies of scale and is beneficial to the business because decreased costs mean they are able to decrease prices to gain a competitive advantage, or increase profit margins. Other forms of economies of scale include technical, managerial, marketing and financial. Technical economies describe a larger company's ability to invest in the latest technology in order to increase efficiency. Managerial economies are when a large company attracts a highly skilled workforce because of the benefits they can offer an employee. Marketing economies are seen in a larger company's ability to gain bulk buying discounts and financial economies occur when a company can attract investors and are able to borrow at lower interest rates. Therefore economies of scale are hugely beneficial to an expanding business due to the competitive advantage that can be achieved.

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Answered by Frances L. Business Studies tutor

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