We explain what the economy of scale is, its types and the requirements for it to exist. Also, what is diseconomy of scale.
What is the economy of scale?
In the microeconomic field, one speaks of economies of scale to refer to the productive situation in which a organization manages to elaborate moreproducts at a lower price for each one. This supposes an increase in the benefits obtained and therefore a greater effectiveness productive, greater capacity for growth and investment.
Generally, this production model occurs when the general costs of a production chain decrease proportionally to the increase in the number of products manufactured per production cycle. In other words, the more elements are produced, the lower the production cost each.
For this to be possible, there must be sources of cost reduction. For example, the large-scale purchase of materials from Inventory (What raw material) makes the cost total.
On the other hand, contracts long-term, technological improvement or management, the increase in sources of financing or increased demand Thanks to the marketing, are factors that reduce the average cost of production in the long term.
Depending on what they are, we can speak of two different types of economies of scale:
- Internal When the responsible factors are found within the business and they are subject to their own administrative capacity.
- External When the responsible factors are outside the company and do not depend on its operation.
The concept of economies of scale is extremely useful when thinking about the dynamics of International Trade and to understand the reason for the so-called "monopolies natural ”.
Diseconomies of scale
Diseconomies of scale are the complete opposite of economies of scale. They encompass the set of forces and factors that lead organizations to obtain losses, due to the increase in the average cost of production of their goods and / or services.
That is, it occurs when the production of a product is more expensive as more units are produced. These types of scenarios and models have been much less studied than their opposite, but like this one, they can depend on internal or external factors of the organization.