Economies of Scale

Firms achieve internal economies of scale when they are able to decrease average costs per unit of production as the size of their output grows. Economies of scale are known to be present when as output rises, long-run average cost falls. Assuming that there is enough demand for the output produced, the firm can increase its overall profitability by continuing to expand the business while lowering the per unit production costs. The slope of the …

…regulations on pollution control. Firms may additional expenditure requirements to control their various forms of pollution, raising the average cost of production for the firm. In a capitalistic system, achieving economies of scale is a major objective of businesses. Companies' profitability is increased by increasing their economies of scale. However a company needs to be flexible and pro-active to ensure that external factors do not result in diseconomies of scale which lead to reduced productivity.