Explain the concept of internal economies of scale and the three stages of returns that can occur when firms increase their factors of production? Graphs maybe used in your answer

Internal economies of scale are centred around the relationship of a firm increasing its factors of production ie. its inputs and how this affects the average cost of producing goods. The general concept is that as a firm gets bigger and expands the inputs in production the firm can produce goods more cheaply in the long run. Thus, leading to lower prices and higher profits from the increased specialisation and marginal productivity in the units of production. I will now go on to explain the stages of returns that are possible when a firm increases its factors of production.If a firm were to double its input factors there are three possible states of returns; Increasing, Constant and Decreasing. Economies of scale are when the firm's long-run average cost is falling in relation to increasing returns to scale, such that a doubling in the input factors would lead to more than double in the production output, such that the long-run average cost would be falling. Constant returns to scale are when a firms increase in production factors is met by an equal increase in output, such that there is no effect on the long-run average cost of production. Diseconomies of scale are when there are decreasing returns to scale, so a firms increase in output factors leads to lower efficiency in production, IE a doubling of input factors leads to a less than doubling of a firms output, this means that the long-run average cost of producing a good increase as a firm expands when operating in diseconomies of scale.